Public Bill Committee

[Mr David Amess in the Chair]

Clause 1

Question (this day) again proposed, That the clause stand part of the Bill.

David Amess: I remind the Committee that with this we are considering new clause 2—Government to retain majority shareholding in Royal Mail Holdings plc and subsidiaries—
‘The Government must retain a majority of shareholdings in Royal Mail Holdings plc and its relevant subsidiaries.’

Nia Griffith: We were discussing the merits of the European Union state aid—[ Interruption. ] I am glad to hear great enthusiasm for the European Union from Government Members. As we saw, it is perfectly possible to deal with Royal Mail’s capital needs and not fall foul of EU state aid rules. Perhaps the Minister will tell us what recent inquiries he has made about Government lending to a publicly owned Royal Mail.
Between the 2008 Hooper report and the 2010 update, Hooper’s calls for a partnership seemed to disappear. He tells us that there is no longer a need for the managerial skills and expertise that could be brought in through a strategic partnership. The fact that Royal Mail could give access to capital under more or less the existing arrangements calls into question the need to privatise. Even if we accept Hooper’s assertion that there is a need for private sector discipline, in his 2008 report he seemed to think that selling a minority stake was sufficient to instil it. It seems strange that in his 2010 report he is insistent about selling off a rather larger stake, though not with a great deal of explanation.
We heard about capital last week from Dave Ward, the deputy general secretary of the CWU. He said:
“When it comes to the question of the need for further access to capital, I think we would accept that the company clearly needs to be able to access capital. Our point is that there are other ways of achieving that. If you are going to proceed with this type of Bill, the starting point of that debate needs to be a bit clearer about how much and what for. I do not think that those questions have been properly answered at the moment. What we hear is the company saying that there is volume decline. Let us be clear; yes, there is volume decline. Sometimes, we disagree on the extent of it, but the fact of the matter is that the modernisation programme takes it into account. It is built on an agreement that will produce profit margins of something like 7%, where currently it is 1% over turnover. That agreement delivers significant new profits for Royal Mail over a period of three or four years.”––[Official Report, Postal Services Bill Public Bill Committee, 9 November 2010; c. 25, Q64.]
The initial clauses of the Bill repeal sections of the Postal Services Act 2000, which allows for the raising of capital. Furthermore, it is possible to set interest rates at a rate that is acceptable under EU state aid rules. Added to this, the removal of the pension deficit should mean that Royal Mail has more money available for investment, anyway, and therefore the need for capital is more moderate.
Some people question the issue of capital even further. In the Consumer Focus written evidence, we read:
“Consumer Focus is not convinced that a privatised Royal Mail needs to amass capital for merger and acquisition activities, as set out in the original Hooper report…There is no compelling reason why USO consumers should bear the risk of this through inflated prices or reduced services.”
That is a clear message.

Edward Davey: While the hon. Lady is on the subject of the capital needs of Royal Mail, does she believe that post administrations in general, particularly Royal Mail, are becoming more or less capital-intensive? How does she think that trend will go over the next few years?

Nia Griffith: It all depends on what they want to do and what returns they get for what they put their money into. If they invest wisely and sensibly, of course there will be capital input, because we would expect any modern service to try to maximise its efficiency and get the best possible equipment. However, they must also consider which fields to invest in and the ways in which they will be most successful.
Let us consider Swiss Post, for example. As we know, Switzerland is a great haven for private capital, yet it has a publicly owned postal service, which has been very profitable because it has looked into different types of activity, such as digital-age activity and the types that Richard Hooper mentioned last week. There are openings that can be explored. It all depends on what the organisation decides to do and what returns it gets on the capital.
Let us consider current financial performance. What sort of state is Royal Mail in? We have heard lots of doom and gloom, but last week people were very upbeat. They seemed to think that there had been a significant change from 2008 to 2010. That was echoed by Richard Hooper, Moya Greene and the trade union representatives. There definitely seemed to be a significant improvement.
In 2009-10, Royal Mail Group made £404 million in operating profit. That was up 26% from £321 million in 2008-09. In 2008-09, all four main business units were in profit for the first time in almost 20 years. They remained so in 2009-10. In 2009-10, Royal Mail Letters made £121 million operating profit. That was up 108% from £58 million in 2008-09 and compared with a £3 million loss in 2007-08. The rise in profits came from increased efficiency, with £206 million of cost savings made in 2009-10 following significant savings in 2008-09.

Edward Davey: Will the hon. Lady tell the Committee what the after-tax performance of Royal Mail Group was in 2009-10? Will she confirm that it lost more than £300 million?

Nia Griffith: The Minister is trying to bring in what is on Royal Mail’s books in terms of the pension deficit, in addition to its current activity. They have to be separated out, which is what we are trying to do. We are talking about looking at Royal Mail as a viable enterprise without its pension legacy, which—let us be honest—is not the fault of the people currently running it. Something does need to be done about the pension legacy, but once Royal Mail is freed of it, that will free up a lot of money to help to make the business go round and keep the books in the black.

Richard Fuller: If the hon. Lady looks at the six months statement for Royal Mail and at the cash flow rather than the profit, she will see that the net cash flow from operations is negative £229 million, which includes net capital expenditures of £187 million. Will she accept that those are significant cash-flow demands that, unless we look for private capital, will have to be covered by the taxpayer?

Nia Griffith: As I mentioned this morning, Royal Mail is working towards a situation whereby in the next three or four years it will be profitable. That is the tragedy of privatising it at this stage: just as the taxpayer has put in a lot of money and might be getting something back, it might be hived off to the private sector, with no opportunity for the taxpayer to share in those returns.

Richard Fuller: Does the hon. Lady recall that the chief executive of Royal Mail asserted, although she had not fully worked this through, that at least £2 billion to £3 billion of additional capital would be required? The cash outflow that would have to be borne by the taxpayer has not yet stopped but is likely to continue and increase. Does the hon. Lady accept that that is what the chief executive was saying?

Nia Griffith: If we take into consideration all the evidence from last week, we understand that the current modernisation programme has been fully funded. What is not clear is exactly what is in the five-year plan for the future. We requested more information about that and we would certainly want to look into it.

Edward Davey: Can the hon. Lady tell the Committee in which year since 2001 Royal Mail Group paid a dividend to the shareholder?

Nia Griffith: I am sure that the Minister can ask his officials to provide him with that information.

Edward Davey: It is my fault and I beg the hon. Lady’s forgiveness. That was a rhetorical question. In not a single year since 2001 has there been a dividend paid to the shareholder. If the Royal Mail Group was in such a healthy financial state over that period, surely the hon. Lady would agree that it would have done so.

Nia Griffith: That is the whole point. From 2008 to 2010, we have seen a significant transformation. We have seen a modernisation programme and things have gone forward as they have not before. There has been a step change, so we are looking towards the situation in 2012-13.

Tom Blenkinsop: I raised the point in an evidence session that the Business and Enterprise Committee stated that if the pension deficit were removed it would give the Royal Mail Group an additional £280 million a year, and if access to pricing were set at a level that covered Royal Mail’s overheads as well as its marginal costs, that would give it another £100 million a year. Moya Greene mentioned the ballpark figure of £2 billion to £3 billion, but there was no clarification about what capital spending that would be on. Richard Hooper was referring to the diversification of Royal Mail beyond the services that it already delivers.

Nia Griffith: I agree with my hon. Friend. We are reaching that turning point for Royal Mail. The changes that the Business and Enterprise Committee suggested in 2009 would make that turnover begin to be apparent.
All in all, we are seeing a tremendous improvement. We may argue about individual figures, but there is no doubt that things have improved in general. We must also remember that it has been a particularly difficult time in the economic sphere and it has been a time of continued falling volumes of mail. If we consider foreign competitors, we will see that even those wonderful privatised institutions that are so often held up as great enterprises to which we should aspire—such as TNT—have experienced significant difficulties. It is not the case that every time something is privatised, it is automatically profitable and every time something is public, it is automatically loss-making; that is not borne out by the evidence.

Damian Collins: Given the hon. Lady’s remarks, does she believe that there are any formerly nationalised industry utilities in the UK that are currently in private hands that should go back into public ownership?

Nia Griffith: That is an excellent question, which we could spend many hours debating. Indeed, the hon. Gentleman’s predecessor spent many, many hours debating nationalising this, that or the other—practically anything that moved could be nationalised. That must be a great topic of discussion in the pubs of Pendle.

Damian Collins: On a point of order, Mr Amess. My constituency is Folkestone and Hyde. My predecessor was Michael Howard, and I assure the hon. Lady that I never had such a debate with him.

Nia Griffith: My sincere apologies to the hon. Gentleman for confusing him with the hon. Member for Pendle, whose predecessor I was referring to, and not to Michael Howard, who came from my home town.

Edward Davey: He supports Liverpool.

Nia Griffith: We could have done without knowing that.
Whether or not we can agree on every figure, we must agree that Swiss Post has done an excellent job. It is publicly owned and has a good track record. My hon. Friend the Member for Middlesbrough South and East Cleveland mentioned the Business and Enterprise Committee. Its interesting report was careful in its approach to privatisation and clearly there are some different views in Committee. On capital, however, it was clear that, with progress being made and modernisation taking place and with the idea of taking away the pension deficit being made clear, if there were some regulatory changes—particularly to the access point payment—there could be significant differences for Royal Mail. It would, in effect, end up being some £400 million a year better off. That is close to the annual level of investment spent by the company each year while drawing down on the Government’s loan facility as part of the current modernisation programme.
I move now to issues that we talked about a lot last week. One main reason that we have been given about why it might be necessary to privatise Royal Mail is that it needs modernisation and that, somehow, that can be achieved only by privatising it. Yet in our evidence sessions last week, we heard how successful the modernisation programme had been, from none other than the Royal Mail’s CEO, Moya Greene. In contrast to what Hooper implied in his 2008 report, in which he gave the impression that the Royal Mail was lagging behind other countries in its modernisation programme, Moya Greene said that it was well out in the lead in comparison with mail services overseas. She painted a glowing picture of the transformation that had taken place in the Royal Mail.

Edward Davey: I refer the hon. Lady to what the chairman of Royal Mail said about modernisation at that same evidence hearing:
“The modernisation that has taken place so far is a remarkable achievement, but it is very late. Compared with any other postal operator of quality or substance in the world, the Royal Mail is at the end of the queue in its modernisation”.––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 14, Q31.]
That is a direct quote. I have to say that that is nearer reality.

Nia Griffith: That is interesting, because it confirms what we have been saying: things were not good in 2008, but by 2010 there had been a significant change. Moya Greene said, in her self-deprecating way, that she thought Canada Post was doing quite well and then she came over here and saw that things were that much further ahead. She is effectively saying, “I came from an organisation I thought was jolly good, and then I realised I was in a different league when I came over here.” That is significant.
We are talking about two sides of the same coin. Hooper was saying that things were not good in 2008, but by 2010 the picture was more positive. The chairman is probably right to say that it might have been better if some of the modernisation had happened earlier. Nevertheless it is now taking place. That is the important point.
Moya Greene spoke enthusiastically:
“I took the opportunity to visit other postal services around the world that had planned and implemented modernisation programmes. I feel like I have seen what other countries have done. I look at what Royal Mail has been able to do in just two short years, when they finally got access to capital, and it has been amazing. We have been able to consolidate 10 mail centres. We have been able to introduce innovations, such as 47,000 new PDAs for all of our letter carriers. We have been able to introduce 10 new world-class mail sites. I invite you all to come and visit them—they are now being recognised internationally as some of the best mail processing centres in the world.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 8, Q11.]
All this modernisation has been undertaken while the Royal Mail has been in full public ownership. That fact does not seem to have prevented the transformation from taking place.

Damian Collins: As it seems to be open season on quoting Moya Greene, I want to draw the Committee’s attention to what she said last week:
“I think that if the Bill does not go through, you will see a continuation of what have been chronic problems for Royal Mail.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 4, Q3.]
Is not her support for the Bill and privatisation pretty clear?

Nia Griffith: With all due respect there may be more than one way of approaching the problem. Perhaps other solutions could be looked into. Perhaps it would be useful if Ministers considered other possibilities, apart from privatisation.
Hooper mentioned several times the idea that there has to be privatisation because of political interference. Hon. Members know about that. The vision is that every time anybody suggests a change in working practices, every working person dashes along to their union rep and every union rep dashes to their leader, and all the union leaders dash to Westminster, where there is lobbying, letters, e-mails, phone calls, meetings, including meetings with Ministers, and so forth. All of that, apparently, stops one change being made in one little office somewhere miles away in the north of Scotland. I do not think that all the modernisation could possibly have taken place if that had been the case. It means either that political influence is rather a myth, or that MPs are not as effective as they like to think they are. Nevertheless, the modernisation programme has gone ahead, and it seems, if anything, to have improved the relationship between the union and the management in the past few years. It is probably a chicken-and-egg situation: the management’s and workers’ situations have improved, and therefore people are more willing to look at change. Change goes well, so people are more willing to respect each other.

Michael Weir: I, too, was most taken with what Richard Hooper said about political interference. It occurs to me that such interference is more than just with the work force and modernisation. There is political interference even in the Bill. As it is a universal service, it is ultimately a political decision that will be made by Parliament, and which will need Parliament to ensure that it continues.

Nia Griffith: Indeed. We would hope that we might even be able to strengthen the role of Parliament and the powers of the regulator that are currently in the Bill. There is a significant danger that if the thing was completely cut loose, privatisation rampant would lead to higher prices and less service being delivered, because only that which is profitable would be desirable, whereas obviously, those of us who believe firmly in the universal service obligation want to see intervention by the Government to ensure that it is there, and for that clause to be strengthened. It would be much easier to help the regulator if there was Government ownership, because a regulator trying to regulate a privatised monopoly would be up against extreme pressure.

Edward Davey: Does the hon. Lady think that that is the case in other privatised industries where there is a regulator looking after economic and social issues? Does she think that one can only regulate for social and economic issues and have public ownership? Is that her position?

Nia Griffith: There are always going to be pressures on a regulator, but the pressures in this case are particularly significant because of the monopoly status that is part of the network and the final mile. It is difficult, and we have seen with Postcomm the difficulties that it got into trying to regulate. Obviously, we all accept that Ofcom has a broader range of experience, and that not having a one-to-one relationship will be an improved situation. Nevertheless, there will be distinct pressures on the regulator, and I think we see them now. We see a terrific pressure between what the regulator would like to impose and what the industry is saying it would accept. We can name a number of examples where it is not always easy to see that the balance is where it should be.

Edward Davey: Is the hon. Lady’s position therefore that there is likely to be more pressure on independent regulators set up by statute than on a Secretary of State operating in a political dimension?

Nia Griffith: The difficulty is that although the regulator is that bit removed, effectively, in many ways, it is in a similar position, because it will always be reporting back to the Secretary of State. None the less, there are significant pressures, and there will be all the more pressure if the body being regulated has been fully privatised. It would not have any sort of cushion or other obligation apart from trying to make a profit for its shareholders.

Richard Fuller: To separate political interference in the regulatory part from other political interference, what I heard were some concerns about access to capital and political interference on the Government opening their cheque book for the much-needed modernisation programmes. Would the hon. Lady give absolute priority to the Royal Mail and its capital requirements at a time of major cutbacks in other areas? Would she say, “No, open cheque book for Royal Mail”, because that is what it needs to get rid of political interference?

Nia Griffith: We were talking specifically about loans and loans from Government sources, rather than giving over something wholesale. That is the distinction that I would make.

Gregg McClymont: It seems to me that there is confusion here. I hope that my hon. Friend will agree that there can be access to private capital without fully privatising Royal Mail.

Nia Griffith: Indeed, my hon. Friend makes a good point. Let us not forget the scale of the modernisation; it has been considerable. In fact, Billy Hayes, the general secretary of the Communication Workers Union, told us that Adam Crozier, the previous chief executive of Royal Mail, estimated that there had been some 60,000 job losses. That is an extremely large number, so we are not talking about some minor changes, but a significant attempt to move the organisation forward, cut costs and bring in modern equipment.
What has the modernisation achieved? Last week and this week, we all heard of the groundbreaking business transformation agreement—an agreement between the management and the CWU—which is undoubtedly one of the most significant aspects of the modernisation. It was designed to address the challenges of modernisation, as set out in the Hooper report, and it completely changed the shape of the company, enabling Royal Mail to respond to the digital revolution while providing employees with improved job security and terms and conditions. There has been a very significant programme of modernisation, and it is a tremendous tribute to the work force and the management that it has been achieved.
Moving on from that—accepting that it has moved forward despite the job losses—it is difficult to match up that glowing report of modernisation with the idea that political interference is preventing change. In the 2010 update to his report, Hooper comments on the much improved industrial relations since his first report. He told us:
“A final aspect of modernisation—culture change towards employee engagement—has begun to make good progress in a growing number of mail centres and delivery offices. This is as a result of the World Class Mail (WCM) initiative which began in Gatwick Mail Centre in late 2008. Employees are encouraged actively to make proposals about new working patterns that save money, increase efficiency and reduce accidents. As a result it has been found that costs are down, productivity is up, accidents are much reduced, employee engagement is vastly increased and management/workforce/union engagement is much better. The benefits of modernisation are clearly visible in the Royal Mail locations where the World Class Mail initiative is being rolled out. The modernisation agreement between the management and the CWU is also a huge step forward in terms of the level of trust between the two. There has been an increase in information sharing and discussion on the strategic future of the company. This should be built upon so that management and unions can”
work together
“to ensure that Royal Mail has a sustainable future.”
As others have mentioned, we also heard from Don Brydon, the chairman of Royal Mail. He said,
“there has been a step change in relationships between the management and the unions at Royal Mail. There is a fundamentally different relationship. The hard-won, difficultly negotiated but nevertheless extremely impressive pay and modernisation agreement that we reached at the beginning of the year has the unions working in partnership with us to modernise the business. That covers the whole expanse of working conditions, numbers and so on. It would be difficult not to say that there is full co-operation.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 9, Q14.]
Union leaders were a little more cautious. Although they would echo the opinion that national level relations were much improved, they still had concerns about some local management problems. Dave Ward, the deputy general secretary of the Communication Workers Union, told us:
“I think that the relationships are improving at a national level, because we are sharing better information, we are debating issues and we are trying to resolve problems. We are trying to deal with the deployment of modernisation, which is not easy. I do not think that that is yet visible at local level, and we could do more to make those relationship improvements visible to employees.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 24.]
Overall, not only does that modernisation seem to be progressing nicely, but it has been at a considerable pace. It has involved what must have been some difficult decisions over the loss of 60,000 jobs. Yet, particularly in the past few months, relations between the trade unions and the management have been improving. That change in industrial relations calls into question the assertion that modernisation cannot take place because the Royal Mail is in public ownership. It can and it has.

Edward Davey: The hon. Lady is quite right to say that industrial relations have improved. That is something that we welcome, and I pay tribute to both sides involved. She has quoted Richard Hooper’s report in that respect, and I refer her to page 16, where he discusses that. He says:
“There nevertheless remains a risk that the new agreement”—
between the unions and the management—
“fails to be fully accepted and implemented at all levels in the CWU and in all areas.”
That points to the risks that remain. I am sure that she would want to ensure that that is on the record too.

Nia Griffith: Indeed. That was very much echoed by the comments of the trade union member himself. He said that there is concern, but clearly management and trade unions are working on that and are aware of those problems.
Perhaps it is time that we moved on. I will not describe all the wonders of modernisation, as described by Moya Greene, because she really did wax lyrical about the number of centres that had been improved and the terrific task that had been undertaken. We will move on and tell the Committee about the worries that we have about the effect of privatisation of the Royal Mail on the post office network. I promise that I will not repeat all the joys of Felinfoel and Ponthenri, because the Committee heard about those this morning. It is essential that we put on the record the considerable concerns that we have about the future of the post office network, if the Royal Mail is split off and made into a privatised company.
The problem is that, no matter how many fine words we hear—and we have heard wonderful words from everybody; everybody loves their post office and everybody speaks warmly of the sub-postmasters—we do not have any concrete, specific proposals. We are being told that the current inter-business agreement will last a little longer. We are told that there will perhaps be some sort of agreement in the prospectus for the sale, but the National Federation of SubPostmasters is clear that it needs a 10-year guarantee as an absolute minimum. One can see why, because there has to be some sort of security that the business will be viable for the 97% of post offices that are owned by the sub-postmaster, who has put in a lot of money and is hoping to realise those capital assets, perhaps to help in his retirement.
While we had great razzamatazz last week on the announcement of the great strategy for post offices, those sub-postmasters will be looking very carefully through that document to see if they can find anything that guarantees Government business to the post offices, when we have PayPoint challenging for the Department for Work and Pensions contract. They will be looking carefully to see whether there are any ways in which more viable business channels can be channelled through the Post Office, when they see that the opportunity to have PostBank has been ignored. They will be even more worried about the third of their business that comes from Royal Mail, and they will want a very specific guarantee that, because of the money that they have already invested, they will be able to sell on their assets as a viable going concern at the end of their time. It is a problem for many of them. The real problem will be attracting new entrants, but as I have said, we have mentioned some examples of that this morning and it was wonderful to hear the hon. Member for Witham describing the opening of a post office. Let us hope that there will be many more of those.
I am not the only one saying this. Consumer Focus says in its written evidence that,
“following privatisation of Royal Mail, subsequent contracts would require a competitive tender process with no guarantee that POL would retain this contract”,
and that,
“for the foreseeable future, the loss of the mails contract, even on a partial basis, would significantly undermine the integrity of the post office network. Even if Royal Mail continued to use the PO in rural areas only, the ability of the network to cross-subsidise from its profitable urban branches would be lost. The future of many post offices, particularly the 6,515 post offices in rural areas, would therefore be in doubt. This would not only threaten access to mails services but also the range of services of economic and social interest available through the PO network.”
As we have heard, Mr George Thomson, the general secretary of the National Federation of SubPostmasters, recently warned in a newspaper article that
“many sub-postmasters are hanging on by their fingertips.”
The Bill proposes to cut those fingertips off altogether. They may be clad in beautiful new gloves due to the investment money announced last week, but the chopping off of the vital contract with Royal Mail, without a guarantee that it could be renewed, is a major blow.
We are all aware of the postal system’s financial difficulties and no one denies the challenges posed by the shrinking customer base. Nobody in the world knows of a postal operator that does not face such challenges. We are all affected by the digital revolution and people are changing their habits. Everybody faces those challenges, so they are not unique to us. Wholesale privatisation, as outlined in clause 1, will have some significant and undesirable side effects in terms of both the post office network and the universal service provision. We have to be sensible. We cannot let short-term interests dictate the fate of such a vital economic and cultural fixture of British society.
We have heard how technology has impacted upon the way in which people use Royal Mail, but we also have to remember that a lot of people do not necessarily have the same easy access as us to some technologies. As I said during a Westminster Hall debate, many people in lower-income groups, particularly women over the age of 65, do not have access to electronic mail and are therefore dependent on their local post office. Moreover, many of them do not have bank accounts, so they collect their pensions from the post office and complete their various transactions there, too. It is easy for us to think that everybody can do all sorts of other things, but for those people the post office is particularly important. The problem is that privatisation will lead to a situation in which coverage, service and prices will be entirely dictated by the profitable. The Bill has the potential to deprive those who need it most of access to postal service.
We are not, of course, the only country with a postal service. We know of Switzerland, but the United States of America is also a great bastion of private enterprise. However, although 80% of its public have their electricity supplied by a private supplier, its mail service remains in public ownership. In fact, it is enshrined in article 1(8)(7) of the constitution, which empowers Congress to
“establish Post Offices and post Roads”.
The US has had its difficulties, too. It has had to make $9 billion-worth of efficiency savings and cut job numbers, which has led to about 100,000 job losses. It is struggling and has the same sorts of challenges and difficulties as us. Nevertheless, there is no suggestion that it will be privatised.
I think we are well aware that private firms have felt the pinch very much in the past couple of years. The same is true of TNT. TNT is always held up as a wonderful saviour which will come along and do everything that Royal Mail ever wanted. In fact, it too has struggled and had difficulties in the past few years.
The challenges that have faced Royal Mail recently have not only been about falling mail volumes. They have been a reflection of the weaker global economy as a whole, rather than a specific problem related to Royal Mail. Clearly, we have examples of private firms having difficulties too. There is a commitment among the public in this country to a proper universal service the length and breadth of the country at a uniform price. We know that European legislation will protect a five-day service. We know that it will protect what is called an affordable price, although quite how that is defined is an interesting question. The issue of a uniform price and the issue of a six-day service—Consumer Focus would like to see a six-day service for packets as well as for letters—are what we might call gold plating: things that we, in this country, want to do over and above the EU directive. They will not be easy to protect if the service is privatised.

Edward Davey: While the hon. Lady is on the subject of six-day and five-day services, is she aware that the US postal service recently applied to Congress to reduce its six-day service mandate to five days, because it is losing billions of dollars?

Nia Griffith: As I say, there is considerable pressure on all postal services throughout the world. Last week we heard suggestions of alternate-day services. We know that some remote areas of Canada, for example, would not expect to have a service every day, so of course services are looking everywhere to try to cut corners, save money and push down costs. In the United Kingdom, we have a very clear idea of what we would like that universal service provision to be. We want to make sure that we do our very best to keep it.
The idea of privatisation seems to have a sort of mythology about it, a quick fix—just go for privatisation with a massive bond and everything will be all right—but I am not so sure that things are anything like as simple as that. We have to be careful not to be blinded by a purely economic perspective in our debate. We have been presented with all those pictures of how technology can take over and how it has affected the viability of Royal Mail, but we still have to remember those people who are dependent on a proper mail service six days a week and who like to have a local post office that they can go to.
We need a way forward that combines the existing postal system’s experience and commitment to public service, while still allowing it to absorb the best ideas and practices from private enterprise. There is no reason why one cannot learn from the other; it does not mean that that has to be privatised.
As we have explained, significant pressures will be put on the regulator and those were very clearly outlined to us by one of the witnesses last week. We invited representatives of rival organisations to Royal Mail. One of the clearest indications of the future pressures on a privatised Royal Mail was given in the evidence from Alan Halfacre of the Mail Users Association. His organisation represents mailers whose postings, he said, make up at least 80% of the volume that goes through Royal Mail in any day. Of course, as he suggests, those big posters have an important stake in seeing a successful Royal Mail, but their interests are not identical to those of domestic customers or small or medium enterprises.
It is also important to note that large posters have formed an important lobby on the direction of Royal Mail and the postal industry generally. Indeed, as has been noted by Postcomm, the benefits of post liberalisation have been largely registered by the large posters. Small and medium enterprises and domestic customers have received rather less liberalisation up until now. In comparison, large posters have experienced liberalisation primarily as a route to very substantial price reductions as a result of Royal Mail’s competitors being subsidised, in a way, through their access headroom regulations imposed by Postcomm.
It would not be unfair to say that the large commercial posters have been the most effective lobby in the regulation of the industry since liberalisation, and since regulation was introduced following the passage of the Postal Services Act 2000. No one can blame the lobby for being effective or for looking after its own interests; that is what it is there for. However, we must take on board how the lobby will continue to exert pressure on a privatised Royal Mail.
In Alan Halfacre’s opinion, a reduction in universal service is inevitable. Last week, he said:
“I believe that if you were allowing Royal Mail to make some significant change now, then its cost structures would change substantially, and that would provide a better baseline for the provision of the universal service. You are only delaying the inevitable, is really what I am saying and I ask you to consider doing it now if you have the courage.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 61, Q130.]
He is speaking on behalf of a lobby that does not need a delivery for six days. For much bulk posting, the tie-up is with advertising campaigns and other media. A great deal of it can be delivered without any significant time deadlines. It is not time-sensitive. It does not matter whether it is Tuesday, Wednesday, Thursday or even, indeed, Saturday when people actually receive the item.
Such matters give force to Alan Halfacre’s words when he says:
“You will have to change it. I don’t know when, but you will have to change it, because there will be so much less of it. If you insist on continuing with the full six days and the first and second—the full McCoy, as it is at the moment—it will become intolerably expensive.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 61, Q131.]
There is a degree of exaggeration in that quote, but the essential point is that the lobby he represents believes that the universal service obligation must be reduced. He went on to say:
“It is not a long-term viable proposition”.––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 61, Q132.]
Such voices will be greatly magnified by privatisation. A privatised Royal Mail will also represent a lobby of shareholders intent on maximising shareholder value.
Again, we cannot blame shareholders for behaving like shareholders. That is normal practice. Nor can we blame them for wanting to maximise shareholder value, but we must take into account the many, varied users of Royal Mail, and if we give priority to purely commercial considerations, we can guarantee that universal service in the post office network will suffer. As Alan Halfacre said,
“Having no post office network would be survivable for most of my members.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 65, Q139.]
That is not true for the myriad of users, communities and small businesses that depend on the post office network.
A privatised Royal Mail would have a powerful commercial incentive to preoccupy itself with a well-organised lobby of the big posters. It is difficult to see how the Government propose to provide the necessary protection. The real worry is that, if we privatise the Royal Mail, with all the excellent work that is being done now, just at the time when the taxpayer might be able to enjoy some of the benefits of the profits, it will be sold off so that the taxpayer receives none of the profits and the private enterprise hawks come down and busily strip away all those wonderful goodies. And then what might happen if a service too big to fail suddenly has to be rescued? Does the taxpayer have to go back in when all those private, profit-making vultures have taken away the lovely juicy bits? That is another huge question.
So we are saying very clearly that we oppose the full privatisation of the Royal Mail service because it is not the best way to protect the consumer, the universal service obligation or the post office network. Nor is it the best way to protect the taxpayer, who has put so much in and would now like to get something out. For those reasons, we oppose the clause and we have tabled new clause 2.

Michael Weir: I should like to make a slightly briefer contribution. I, too, oppose the clause, although I also oppose new clause 2, and I will explain why later.

Edward Davey: Will the hon. Gentleman tell me how the water, electricity and telephone services for his constituents have deteriorated since privatisation?

Michael Weir: The Minister should know that water has not been privatised in Scotland. As for the telephone system, I will introduce him to some of my rural constituents, who complain about the lack of broadband services through the telephone system, which has not been invested in. The Minister is on somewhat dodgy ground on those issues.
I represent an area largely composed of small towns and a large rural area. It is rural, but by no means remote. Over the past few years, however, there has been a steady decline in the number of services in much of the area. With the best will in the world, given the current financial climate, it is highly unlikely that there will be much improvement. We have seen the closure of rural service stations, shops and post offices. The banks have retreated from many places, and that is likely to continue.
There have also been major changes in postal services, with a reduction in mail collections and ever later deliveries. I live in town, but I do not get my mail until about 1 pm. In rural parts of my constituency, it can be much later than that. To me, that is a minor inconvenience, but to many businesses in my constituency, it is a crucial matter. The rise of services such as DX and Legal Post is no coincidence; it has come about because of businesses’ need to get mail first thing in the morning.
In his evidence to the Committee, Richard Hooper quoted a point that I made to him right at the onset of his investigation into Royal Mail back in 2008 about the crucial importance of the universal service obligation to businesses in rural areas. I have been arguing that point ever since, and it colours my attitude to the Bill. The universal service obligation is crucial to my area, and to rural areas throughout the United Kingdom. In his evidence, Richard Hooper also mentioned the young lady with a mobile phone and laptop who wondered why on earth she would need anyone’s physical address—perhaps she has now moved on to a smartphone. I can empathise with that view, to some extent. Young people in Angus are no different from young people anywhere else; they communicate by e-mail and text. Indeed, in a world where even the Queen has joined Facebook, the personal letter perhaps really is dying out.
In his first report, Mr Hooper made the startling point that only about 11% of mail is made up of private letters, and the latest Postcomm research says that it is 10%. Of that, about 8% is sent around Christmas. One would presume that most of that is Christmas cards or round robins. That is a sobering fact. It may be a small number of people who still use private letters, but the post remains crucial for those who do.
The business part, however, remains very important. In the research carried out by Postcomm, more than half of businesses surveyed were of the opinion that they will use the internet more in the future, but the vast majority—93%—of businesses believe that they will always need to send some things by post. Half of businesses expect more customers to order products online in the future, indicating a belief that the market will grow further. Interestingly, digging down into the figures, it appears that of those who spend between £100 and £500 a month on mail—basically, small businesses—72% have either stayed at the same level or have increased their usage of Royal Mail in the past year.
The young lady with a phone and a laptop may never feel the need to write a letter, but if she lives in a rural area she will certainly use the internet to order her books, CDs or DVDs, because, to put it simply, since the demise of Woolworths, it is unlikely that there will be any stores in her town that sell those items. That is a growth industry, coming one way, for people living in rural areas. But the process works both ways: not only do people in rural areas use the post to have items delivered, but, crucially, small and medium-sized businesses in such communities also use Royal Mail. In many cases, such businesses do not have an alternative, as most do not have access to alternative providers and they cannot get the benefits of bulk discounts, as the hon. Member for Llanelli rightly said, citing evidence from the Business and Enterprise Committee of a year ago. The universal service obligation is absolutely crucial to them, and to the hope of creating and sustaining businesses in rural areas. In his 2008 report, Hooper noted that 86% of letters are sent by businesses, but 70% are received by consumers. So there is an important market for businesses, particularly small businesses.
I am sure that many Government Members would not disagree with much of what I have said about rural businesses, but they would argue that the provisions on regulation in the Bill are sufficient to enable the maintenance of the USO. It seems to me that the pressures on a fully privatised Royal Mail will inevitably lead to a reduction in universal service. Despite Moya Greene’s evident enthusiasm for the USO, we heard evidence that it was making a loss for the company, although witnesses from Postcomm and the bulk mail users felt that the headroom charge paid by other operators was initially set too high.
One does wonder whether, even after modernisation, carrying mail to many rural and remoter areas can ever be cost-effective. The Library note on the Bill states that the delivery of a letter to the islands of Scotland will cost about £10 in real terms, of which the cost of the stamp will be only a small proportion. I recall that the previous management of Royal Mail tried to introduce a zonal pricing system, even within the current regime. That was eventually rejected, but even they were thinking about how costs are greater in rural areas. The one thing that the USO does is ensure that the same costs apply everywhere, which is vital for the regeneration of our rural areas.
Postcomm, however, has recently announced that it is minded to allow a higher price, even within the current system, and has indicated that a first-class stamp may rise by up to 5p next April, despite the fact that, in his report, Hooper made the point that rising prices normally mean falling volumes. It is difficult to see where the system is going with that.
The ultimate point is that if there is privatisation of Royal Mail, there may well be greater competition in urban areas. I am sure that in London, Birmingham, Newcastle, and perhaps even central Scotland there will be increasing competition, because there is a larger market, although, in passing, I wonder whether a sale to TNT or Deutsche Post would lead to a reduction, because of the removal of one of the existing competitors from the market. However, in rural areas it will be different. As I have said, it is already much more expensive to deliver and collect in rural and remoter areas, and any private company that seeks to cut costs will inevitably look to cut services in those areas.
There seems to be nothing in the Bill to prevent, for example, a privatised company from hiving off profitable pieces, leaving the universal service with a shell company that could later go to the Government and say, “We can’t do it any more; we can’t afford it. We’re looking for a public subsidy or we’re going to abandon it.” We are then thrown back on the regulator alone, and the possibility of other providers having to chuck in some money to keep things going. I do not think that that is sufficient.
The Minister, intervening on the hon. Member for Llanelli, asked about other regulators. I served for some years on the Business and Enterprise Committee and on the Energy and Climate Change Committee, and we spent many happy hours examining the regulation of the energy industry and the role of Ofgem. In the energy industry there were the big six providers, and there were serious concerns about whether the regulator was effective in curbing some of their activity—whether there was sufficient pressure for social tariffs and for dealing with successive rises in energy prices. It was a very frustrating experience, in many ways. The situation in the postal market seems to me to be even worse, because Royal Mail, or whoever takes it over—if it is TNT or Deutsche Post it could be still worse—will be by far the largest provider. The rest are minnows in comparison. I do not feel that regulation is a sufficient means of protecting the USO. We shall debate later the clauses that allow Ofcom to consider the terms of the USO. I have grave concerns about some of them.
In a truly and fully competitive market, the Government will come under intense pressure to relax the terms of the USO, and may find that pressure difficult to resist. I repeat the point that I made on Second Reading: Royal Mail should be seen as part of the national infrastructure and should be kept in public ownership, and I ask the Committee to reject the clause.
New clause 2 also gives me cause for concern. As I suggested earlier, my position is simply that Royal Mail should remain in public ownership. I understand that the Labour party—at least during the previous Parliament—was in favour of part-privatisation. I opposed that stance and continue to do so, as by agreeing to part-privatisation we would be selling the pass and leaving open the possibility of further privatisation. I seem to recall that in the previous Parliament, Lord Mandelson was prepared to sell 49% of Royal Mail. Indeed, if I understood the hon. Member for Ochil and South Perthshire this morning, when he was questioning the Minister about Liberal Democrat policy, it is still the policy of the Labour party to be prepared to sell up to 49% of the Royal Mail.
I am old enough to remember the privatisations undertaken by the previous Conservative Administration. Only on Second Reading, the hon. Member for Gainsborough (Mr Leigh) was bemoaning the fact that he had not been allowed to privatise Royal Mail then, as he had wished to do, and said that if he had, we might not be in the present situation. I do not agree with that point, but it is an interesting observation from someone who was active at that time.
When the previous Conservative Government engaged in privatisation, they included certain attempts to ensure protection for the public interest. In such cases, they kept golden shares in the companies that were being privatised, the classic example being the energy companies to which I referred. I appreciate that the golden share is not quite the same concept as a minority shareholding, but what happened there is indicative of how matters might play out with a partially privatised company.
If we look at what has happened since, all but two of the UK’s energy companies are owned by foreign multinationals. For example, the Government had a golden share in ScottishPower, but the company is now wholly owned by the Spanish firm Iberdrola. The previous Labour Government announced in 2000 that they were giving up their remaining golden shares in privatised companies,
“opening the way for potential foreign takeover bids across a range of industries including defence, telecoms, energy and transport”,
as TheIndependent put it at the time; and much of that transpired. I came across an article from BBC News from 2003, reporting that the golden share in BAA had been ruled illegal by the European Court of Justice, on the grounds that it restricted free movement of capital in the single European market. Under the sub-heading “Political considerations” it states:
“BAA said it would not oppose the government giving up its golden share. But analysts said the possibility of a takeover was remote.”
BAA is now owned by a Spanish company, and it is selling off several of its airports under pressure from the Office of Fair Trading.
That seems to me to indicate that once we go down the road of privatisation—once we sell the pass, once we cross the Rubicon, or whatever analogy one uses—it will inevitably lead to more and more privatisation. The needs of small businesses in rural and remote areas will fall victim to the greater needs of profit in urban areas, which account for the bulk of the business. We cannot allow that to happen to something as important as Royal Mail. The only way forward is to stand firm, keep Royal Mail in public ownership and resist the siren calls to go down that path. We should not agree to clause 1 or new clause 2, but we must reiterate the principle that Royal Mail should remain entirely in public ownership.

Karl Turner: I cannot support the Bill in its current form, and I oppose clause 1, so I rise to speak in support of new clause 2. The proposals in the Bill will be detrimental to many of my constituents and the businesses in east Hull, and in the UK as a whole. For that reason, I urge all Members to support the new clause.
The removal of restrictions on ownership of Royal Mail holdings will undermine the future of post office outlets. It will weaken the unique service obligation that Royal Mail so proudly boasts, on which the public have come to rely. It will undoubtedly result in job losses, and it will be detrimental to the efficacy of small and medium-sized businesses in my constituency.
The plans threaten to turn a public service into a private monopoly. Post offices play a particular social role in communities up and down the country, and their existence should not be driven simply by profit and loss. The debate must focus on the type of postal service that the public and business require. From the evidence that we have heard, we can appreciate that small business needs a six-day delivery and collection service, and that the general public want good access to post offices, a strong universal service that delivers to their homes and businesses six days a week, a service that dictates that one price goes anywhere, and a network of post offices that fully serves our communities. A situation that allows 90% of decision-making powers to a limited number of private investors can only serve to damage that.
The previous Government established criteria that assessed that a minimum of 7,500 outlets were required to give reasonable access. The minimum requirement has to incorporate approximately 3,500 non-viable outlets. I cannot see any private company being willing to provide up to £150 million a year in subsidies to ensure that those criteria are met.

Edward Davey: Will the hon. Gentleman give way?

Karl Turner: In a moment. That leads to the question of whether the Minister has had conversations with potential private investors who are willing to support 3,500 non-profitable access points. If so, I very much welcome his interjection.

Edward Davey: I am grateful to the hon. Gentleman for giving way. Is he aware that the Bill does not seek to privatise Post Office Ltd, or the post office network, to which he is referring, and that the Bill states that the post office network shall either be 100% Crown-owned or go to relevant mutuals? We are coming on to those clauses, but that is the position. I have not had the conversations that he is suggesting I may have had, because there has been no need.

Karl Turner: I am very well aware of what the Minister says, but the reality is that there are many non-profitable post offices, and there is nothing in the Bill that protects them. A private company, in my respectful submission, is unlikely to subsidise them. That is the reality of the situation.

Edward Davey: I think that the hon. Gentleman is also aware of the announcements made by the Government as a result of the spending review, in which they say that, for the next four years, the Government are providing £1.34 billion, as part of the network subsidy payment, to Post Office Ltd, or the post office network, to help it transform.

Karl Turner: Absolutely, but what happens after that? What happens when all of that runs out? What is the reality of the situation? If we have 90% ownership by private investors, and many access points are just not viable, who is going to support them? That is the reality of the situation.

Damian Collins: What guarantees have there been under public ownership, given that we have seen thousands of post offices close, and tens of thousands of jobs lost in Royal Mail over the past few years? I cannot see what guarantees continued public ownership would give those workers.

Karl Turner: The reality is post offices closed; that is absolutely right. There is a minimum that is required to meet the universal service obligation. From the previous Business Secretary’s assessment, we understand that 7,500 outlets were required to ensure that that continues. The post offices that closed under the previous Government, in my view, were closed under the modernisation programme, which we have heard evidence about. Everybody agrees that it is working. It was difficult for trade unions and other partners to grasp it, but it is actually working now.
We have heard evidence from many stakeholders and interest groups. That evidence shows that they also share my concern. Hon. Members will recall the evidence of the chief executive of Consumer Focus, Mike O’Connor, who said:
“Clearly, you cannot force a private sector company to always do business with the post office network. I was glad to see that Moya Greene could not envisage a situation in which they did not work with the post office network. I can envisage such a situation in the future.”––[Official Report, Postal Services Public Bill Committee, 11 November 2010; c. 88, Q175.]
The Federation of Small Businesses stated that the universal service obligation
“must be protected and services must not diminish. Any change to the scope of the USO could have a negative impact on small businesses.”
There must be no more post office closures. We know that 59% of small businesses want to continue to receive mail deliveries six days a week and that 94% want a UK-wide postal service. Billy Hayes, the general secretary of the Communication Workers Union, argues that it is modernisation, not privatisation, that is required, and that Royal Mail can flourish with the majority stake held by the Government. Committee members can be assured that I agree with Mr Hayes’s sentiment and I agree that the Government’s obsession with privatisation is worrying.
I firmly believe that the desire to privatise Royal Mail is about ideology, despite the Minister’s assertion that he is not ideological. He is right to say that he seemingly agreed with me prior to the general election, since he fought the election with his Lib Dem colleagues on the promise that his party would seek to keep the majority stake of Royal Mail in public hands. In that sense, he was ideological in his views prior, of course, to his promotion to Government. It is worth reminding Committee members of the Liberal Democrat manifesto, which stated:
“Give both Royal Mail and post offices a long-term future, by separating Post Office Ltd from the Royal Mail and retaining Post Office Ltd in full public ownership.”
The Minister laughs, but that was in his political party manifesto, on which he fought the election:
“49 per cent of Royal Mail will be sold to create funds for investment. The ownership of the other 51 per cent will be divided between an employee trust and the government.”
That sounds a lot like what we previously said, plagiarised, in my submission, from this party.

Edward Davey: Is the hon. Gentleman aware that if shares are owned by employees, they are in private hands?

Karl Turner: Of course, but my point is that this is another example of a Lib Dem promise that has been broken. No surprises there, but the Minister should at least have the decency to admit it. If his long-held position has changed, he should just say it—admit it. The reality is that the senior partners in the coalition have an ideology with which he once did not agree, but clearly he does now.
In his evidence, Mr Hooper said that the decision about whether to get the majority of investment from the public or private sector was a political one, and was not born of economic sense. I agree with that. I must reiterate that a political decision is very much at the heart of the coalition Government’s intention to privatise this vital public service, which exposes 100% of a vital service to the insecurities of the market. It is a political decision and it is not simply about finding external investment. It is about the Tories’ desire to roll back the state. The universal postal service is a public service—a vital infrastructure that supports the UK economy. While the postal market may be changing, it remains central to business in the UK. The development of new technologies and the growing dependence on the internet for commerce is underpinned by postal services.
The previous Government recognised the need to modernise Royal Mail and, as the Hooper report recommended, sought a strategic partner that would provide much-needed private investment. Trade unions accepted this and the groundbreaking business transformation agreement is proving positive, as we have heard from witnesses to the Committee.
As the chief executive of Royal Mail confirmed, modernisation is working and progressing well, relations between trade unions and Royal Mail are productive and the challenges identified by the Hooper report are being dealt with. The modernisation programme is fully funded as part of Royal Mail’s five-year business plan. Costs are falling, profits have increased from 0% in 2007 to 4.3% in 2009 and the business is projected to make healthy profits by 2012.
It will be no surprise to Committee members that I have serious misgivings about the Bill, which is fatally flawed. To add to concerns, the breakneck speed with which the Government are attempting to pass the Bill has meant that important questions directly affecting the reasoning behind privatising Royal Mail have gone unanswered. What has changed, meaning that we have to go from partial privatisation to full privatisation?
The common-sense approach might be to wait for the modernisation to be fully completed and for the pension deficit burden to be relieved and then to assess the state of the Royal Mail Group. Undoubtedly, those two factors would have an impact on Royal Mail profits. Privatisation may even be unnecessary.
I am also concerned that we are calling for further capital investment, but no one is able to specify an amount. Moya Greene ventured an approximation of £2 billion to £3 billion, but both she and Mr Hooper were unable to accurately provide firm figures. the Under-Secretary of State for Culture, Olympics, Media and Sport and the Under-Secretary of State for Business, Innovation and Skills who are members of the Committee seem uncertain about that as well. How can the Government say that 90% privatisation is necessary when we cannot determine how much investment would make the venture viable? Are no other Committee members concerned that an assumption is being made that capital investment is needed but no one has bothered to research and determine exactly how much? Can Committee members really expect investors to buy shares in a company that cannot determine the amount of capital that it requires to make it competitive? Surely this is further evidence of a narrow ideological interest driving forward an ill thought-out and badly flawed proposal.
I spoke recently to a constituent who is the proprietor of a small business in Hull East. She is concerned that her business will struggle in an encounter with another blow, and she regards the Bill as that blow. The connection between Royal Mail Group and small business is important. Over the past few decades they have built up mutual dependency. Small businesses provide a loyal customer base for Royal Mail Group and are reliant on the services that they receive. Research undertaken by the Federation of Small Businesses bears that out. It found that an overwhelming majority of small businesses use stamped mail and that nine out of 10 make a trip to the post office to buy the stamps and send the mail.
Overexposure to market conditions will hinder rather than help small business. As Royal Mail becomes exposed to unrestrained competition, the universal service obligation will be put under further pressure. I suggest that that obligation, much like the Liberal Democrats’ election pledges, will be worth little. Small businesses rely on the service that they currently receive from Royal Mail and on access points to increase footfall in the high street. Such businesses are the lifeblood of our economy and important drivers of growth. We should not harm them. We should encourage them to grow and innovate. In this time of austerity, small business expects support from government, not the withdrawal of services that they rely so heavily upon.
In drafting the Bill it is clear that the Government have not thought through the impact of the changes on all members of our communities. I am deeply concerned that other avenues have not been explored, and I urge the Minister to consider alternatives to the wholesale privatisation plan before us.
The haste of the Bill becomes even more baffling when one considers that the Government have no real democratic mandate for this proposed legislation. The Liberal Democrats, in their election manifesto, firmly supported the Labour plan for part-privatisation. I understand that the Conservative manifesto made no mention of wholesale privatisation of the Post Office. However, it is interesting to note that on page 75, the manifesto says something that I agree with, unusually:
“Nothing underlines the powerlessness that many communities feel more than the loss of essential services, like post offices and pubs, because of decisions made by distant bureaucrats.”

Nia Griffith: Is my hon. Friend aware that, despite all those wonderful warm words about pubs and how we should look after pubs in our communities, the initiative to set up community co-operatives to look after pubs, which was initiated by the previous Government, was one of the instant cuts made by the present Government when they came in? They slashed £3 million from a programme that would have helped many pubs to become viable community pubs. Does he think that, quite frankly, we are going the same way with the Post Office and Royal Mail?

Karl Turner: I am grateful to my hon. Friend for her intervention, and of course I agree entirely. I am not surprised to hear warm words and big promises from either party in the coalition Government and then, all of a sudden, to see such big, heavy, savage cuts. That is the ideology of the coalition Government.
It is clear to me that the electorate did not consider the 100% privatisation of Royal Mail, which effectively is what this is, when they cast their vote at the ballot box. I urge the Government to think again and reconsider the situation. I would argue that if this goes wrong, the Government will not easily be forgiven by the electorate. Public opinion is clearly against the Bill. A YouGov poll dated 30 September and 1 October 2010 shows that 54% of people oppose the privatisation of Royal Mail and only 23% support it.
It is clear that when seats at the Cabinet table started to open up, the Lib Dems sold out. It is clear for all to see: the Bill lacks public backing and the coalition Government have no mandate for it. I fully support new clause 2 and would strongly urge hon. Members on both sides of the Committee to do the same.

Tom Blenkinsop: I am speaking in opposition to the Bill and clause 1, but I support new clause 2. I want to make some brief points based on the evidence presented to the Committee during our previous sittings.
The most important and fundamental element of evidence has been the general consensus on the need for capital, namely private capital, access to be acquired for Royal Mail, yet we do not know how much or what it is for. Secondly, we have heard evidence on ownership in terms of the nation, nationality and the base of any potential owner, whether public, private or mutualised. We have heard and seen examples from across Europe and North America of public models, private models, and public models acquiring private capital. We have heard evidence on the current boards of Royal Mail and the Post Office and those who hold positions on them. We have heard evidence on potential asset transfers from Royal Mail to the Post Office, and we have seen evidence on the present economic viability of post offices across the UK.
We have also seen the Government rule out a post office bank, although we have been presented with oral evidence that demonstrates that such a resource would support any future Post Office model and would address access issues for marginalised demographics and communities in deprived urban and rural areas, such as mine in Middlesbrough South and East Cleveland. We have heard evidence from Mr Richard Hooper calling for the practice of cherry-picking to be stopped, and we have heard about the need for the USP, accountability and genuine consumer consultation. We have also heard evidence of consumer anxiety about Ofcom regulation, or the lack thereof. I will try to address those points in my speech.
Key to Hooper’s recommendations is that Royal Mail should have access to private capital. His update says that we must
“ensure that cash is readily available when needed to fund the accelerated modernisation programme on a commercial basis that matches, indeed tries to get ahead of, the rapid changes in the market”,
which obviously advocates diversification. He also says that there should be an injection of
“private sector disciplines into the business”.
That was mirrored in the Queen’s Speech in May 2010, which
“talked specifically of ‘private sector capital and disciplines’”.
Hooper’s 2010 review also talked about the “spectre of political intervention”, which can be ongoing while in public hands, or very immediate and debilitating, as in a privatisation. Coming from the north-east, I have personally seen at first hand the debilitating effects of privatisations when applied, as the Secretary of State for Business, Innovation and Skills said, in a Maoist fashion. However, nationalisation can also be held on to too rigorously in certain situations and in industries where that ideology does not fit, particularly in the steel industry, and neither ideology has helped that industry over the years.
My main point is that in the Bill we have quite a fair look at the post office network and an attempt to engage with mutualisation and co-operatives. However, coming from a background without that knowledge, what I find unnerving is that that approach is being tried for the post office network but has not really been tried for Royal Mail, where there is an opportunity. That is something that I will go into as well.
Hooper’s update also acknowledges that there is now less need for corporate experience than at the time of the 2008 review. He says:
“The reduced need for corporate experience means that there are now greater options for introducing private sector capital and disciplines. It does not have to be a sale to a partner. The much needed equity capital could, for example, be raised by means of an IPO…turning Royal Mail into a publicly listed company. The company’s need for cash, and the timing of that need, will influence the choice of preferred option.”
Businesses can raise capital in a number of ways. They can use debt finance, as suggested, or sell ownership to equity finance. Debt finance can be used to raise capital without a change in ownership. The level of capital required and what it is used for are outlined and clear. However, Mr Hooper could not tell us specifically how much capital was needed, or what it was to be used for. Is the capital for Royal Mail’s expansion, as Hooper alludes to, in terms of diversification?
In its evidence, Consumer Focus clearly states that it is not convinced that a privatised Royal Mail would need
“to amass capital for merger and acquisition activities, as set out in the original Hooper report, at the present time. There is no compelling reason why USO consumers should bear the risk of this through inflated prices or reduced services.”
The Minister has not said what the capital would specifically be for, nor specified the amount required. Moya Greene from Royal Mail said that the sale has all
“to do with the state of the market at the time”
and the
“best capital offer that is available to us at that time”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c.17, Q39, Q41.]—
namely, in 2012. She gave a general figure of £2 billion to £3 billion, without information on what it would be for. Indeed, Donald Brydon confirmed that cash was the bottom line, but again did not say how much or what it was for.
The question remains: will the taxpayer get a fair price for the company when we, Parliament, do not know the value yet? What is the extra unquantified capital for?

Gordon Banks: Does the question not bring us back to the conversations and the points that we made this morning? If the sale does not happen within the modernisation period, there will be a modernisation hiatus. We need to know what the source of modernisation funding will be as we go forward, but the Minister has yet to answer that.

Tom Blenkinsop: Yes, I agree. We need to know how much modernisation funding has already gone in, how much extra will go in—and whether that will be a top-up figure on the estimated value of the company now—what the market estimate is, and what research is being done into the market.

Edward Davey: The modernisation agreement as currently established with Royal Mail and CWU lasts until 2013, if that is of any help to the hon. Gentleman.

Tom Blenkinsop: Yes, it is of some help, but I still want to know what the amount of money going in will be, and what Royal Mail’s current plans are, assuming that the managerial staff are kept on under any new owner. There are a number of questions there that we need to go into in much more depth, if we can.
A sale in 2012 should be based, as Moya Greene says, on
“the best capital offer that is available to us at that time”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 17, Q41.]
but that does not mean that that is a guarantee of the best price at any time in a given period.

Gordon Banks: Often, the highest price is not the best deal. It often does not protect the very services that are held dear, in whatever business. Is my hon. Friend concerned that the Government might just accept the highest bidder?

Tom Blenkinsop: That is it, and there are other caveats. The Government could do a good job and sell to the highest bidder, but there is no guarantee regarding the follow-up in funding or capital from that company. We have heard evidence that privatised companies have more access to private capital; that might be the case, but it does not necessarily mean that they have the political or executive will to access it. We can come back to those points later.
Royal Mail’s capital needs can be met without the Government having to sell a majority stake. Assuming that the pension deficit is dealt with, one part of the capital could be raised from access to private capital via a minority stake sale, and the rest from issuing corporate bonds. The detail of the amount of capital required and the valuation of Royal Mail are still missing, and it is therefore not clear whether, as a seller, the state and the taxpayer would get a proper price for their publicly owned company.

Gregg McClymont: Does my hon. Friend agree that from what we have heard, both in evidence and so far today, it is clear that full privatisation is a political decision and not a technical requirement for raising the necessary capital for Royal Mail? At the very least, we have not had any evidence to the contrary.

Tom Blenkinsop: I agree. Applying privatisation without assessing the industry has been a political crime in past decades. A one-size-fits-all approach, of whatever ideology, has been applied to industries without there being proper research or enough time being given to research the industry’s adequate capital needs.

Edward Davey: Which part of Richard Hooper’s work does the hon. Gentleman think was not thorough enough?

Tom Blenkinsop: I do not doubt that Mr Hooper’s work was thorough, but I suggest that we are in the middle of a political process and there is a political decision to be made. I have experience of industry privatisation in my own area—steel, for example. I am not saying that nationalisation was perfect, or that it guaranteed employment or quality of health. It certainly did not guarantee quality of health, but nor did privatisation. However, we need to have far more detailed inquiry into what the industry needs.

Gregg McClymont: I wonder whether my hon. Friend can help me. I am struggling to remember the name of a British Gas chairman—Cedric something or other. Can he remember his second name? He was the man who took British Gas for everything he could.

Tom Blenkinsop: I cannot remember that gentleman’s name, but I do remember another gentleman called Mr MacGregor, who certainly took two important industries in my region to the wire, without due regard to the local populace.
However, I believe that our side of the House can acknowledge that the public want a publicly owned service—not a publicly owned business—and that access to private capital will ensure that that service functions adequately. The present chief executive officer of Royal Mail, Moya Greene, has come from Canada and a publicly owned mail logistics system that has access to private capital. Moya Greene commented that Royal Mail’s modernisation is better than Canada’s—better than a publicly owned mail system that has access to private capital. Yet that option seems to be ignored by the Bill.
Turning to employee shares, historically, if we consider examples of previous privatisations in the UK—as mentioned in the evidence session with the representatives from Mutuo and the other mutual groups—all UK privatisations have involved companies with fewer than 50,000 employees. No company has previously given shares of more than 10% to its employees—for example, in 1988 British Steel gave 6.2%; in 1987, British Airways gave 9.5%; and in 1984, British Telecom gave 5%. In fact, Rolls-Royce in 1987 set the precedent with the highest figure of 10% being given to employees.
We must remember that, at the time, all those firms had fewer than 50,000 employees. Royal Mail has 150,000 employees, which is more than three times that figure. The Bill refers to 10% being the minimum. I would like that element to be looked at much more closely in relation to the current number of Royal Mail employees. There should be some investigation or dialogue with the unions and employees directly before we talk about any potential share sale to any private owner.
Donald Brydon stated that the company has argued for employee share ownership for a long time. As it stands in the Bill, that aspect deserves further exploration and investigation. It has not been clarified how shares will be distributed, and the amount has not been mentioned. Whether shares will be permanently held by employees has also not been clarified. The value and amount of shares going to market surely can be calculated only after talks with employees and once the amount and value of those shares has been clarified.
I want to talk about asset transfer post-privatisation. When Consumer Focus gave evidence to the Committee, part 13.1 of its written memorandum drew attention to the fact that the Bill allows for the transfer of property or other assets between parts of Royal Mail, which could be privately owned, and Post Office Ltd, which could be publicly mutually owned. Those provisions allow property transfers to be made directly by the Secretary of State or by the holding company, subject to approval by the Secretary of State. That can occur post-privatisation.
Technically, Royal Mail—a private company—could have access to and potential ownership of publicly owned property. That was made all the more worrying when Andy Burrows of Consumer Focus gave evidence in a session and highlighted that nearly 8,000 post offices—mainly those in rural and urban deprived areas such as mine in Middlesbrough South and East Cleveland—are currently economically unviable.
That throws up potential problems for, first, meeting the universal reach and, secondly, the retention of mutually publicly owned postal office property, if post offices are closed because of non-viability. That is all the more likely as new services for Post Office Ltd, as highlighted by the Bill, are not described, referred to, given a “for instance” or a “such and such,” apart from the post office bank, which is completely ruled out.
I conclude by stating my opposition to the Bill and saying that I offer the hand of friendship to Government Members and invite them to consider whether the elements I have described should be investigated further. I stand in opposition to the Bill on the clause stand part and I support new clause 2.

Gordon Banks: Picking up where my hon. Friend left off, I am glad to see him offer the hand of friendship to the Minister. That is something that I endeavoured to do this morning and will endeavour to do again. I rise in support of new clause 2, and I think my hon. Friend the Member for Llanelli has articulated well the Opposition’s view of the Bill, as indeed have my hon. Friends the Members for Kingston upon Hull East and for Middlesbrough South and East Cleveland.
Another of my hon. Friends, the Member for Cumbernauld, Kilsyth and Kirkintilloch East, has left his seat. I made reference to the fact that the title of his constituency is the longest in Parliament, but I have to say that the title of the constituency of my hon. Friend the Member for Middlesbrough South and East Cleveland is pushing that claim. I thought that mine had a long title.
The Committee has heard our position on new clause 2 and the Bill as it stands. That is, as we have heard from hon. Members, a position on which the Minister was re-elected in May, but it is a position that he no longer supports. We have to ask ourselves, the Government and the country a question as we scrutinise the Bill. That question is: what kind of postal service do we want in this country? Do we want one that offers a strong universal service on a six-day week, or one where that service is put at risk through privatisation?
Everyone on the Committee will have heard from the evidence, the debate, and before the Committee was even conceived, that the postal market is challenging. It is changing with the increased use of e-mail and the internet. While this market is changing, the postal service still has a strong part to play. In fact, the witnesses who gave evidence made that very point.
Take internet companies, such as Amazon, which rely on a universal postal service. No doubt, we were all amused by Richard Hooper’s “Beam me up, Scotty” reference, but he was right. We have not mastered the art of teleporting yet. As long as that is the case, physical, non-digitisable products are a huge growth market. One of the reasons why I am optimistic about Royal Mail is that there is a huge opportunity for it to be a “major player”. Those are Richard Hooper’s words, not mine.
However, if we are to use the argument of falling volume in the letter market as a reason for the sale, we must remember, as has already been pointed out, that Royal Mail has anticipated the current mail volume decline, that its fully funded business plan takes account of the projected mail volume decline and that it expects to complete its modernisation, as we have heard from the Minister, by 2013. By that time, it will be making healthy profits, despite the falling mail volume.

Edward Davey: Is the hon. Gentleman telling the Committee that the Royal Mail Group has told him that it can predict with a degree of certainty how mail volumes will fall, and that it has factored that into its calculations? During my discussions with its representatives, they were surprised to see mail volumes fall by 7% last year. The range of its forecasting for falling mail volumes for the next five years is between 25% and 40%. Those are large numbers, but that is also a large range.

Gordon Banks: The Minister makes a good point, because we have to base our decisions on something. We must have some basis of fact or statement of anticipation going forward—it is called a business plan. That is something that I questioned Ms Greene on. In particular, I questioned her on whether she was in a position to pass the Committee a little more information on her predictions for the future before the Committee ends its deliberations, because it is of huge importance.
A private company will not want to invest in a business burdened by a costly universal service or by such a costly service that it restricts profit growth in their business. Private shareholders will seek to unpick the universal service, arguing that it is too costly and unsustainable. That will undermine the universality of the service.
Services in rural areas, which are costly to reach—such as the one represented by the hon. Member for Angus, who has mentioned his constituency, and part of my constituency, for example—will decline, with fewer deliveries each week.
As my hon. Friend the Member for Llanelli said, in his most recent report Richard Hooper recommended a review of the universal service alongside the privatisation of capital for Royal Mail. He repeated that again in Committee last week. It was interesting to hear evidence from Mr Hammond of Consumer Focus about which day would be lost if there was a reduction in the universal service obligation for letters from six days to five. That was interesting because it brought yet another dimension to the issue. The demands of businesses and individuals compete and the aspirations of the public and business can really be reached and satisfied only by the current six-day universal service obligation.
The Government are seeking to separate the post office network from the rest of Royal Mail. That is a Liberal Democrat manifesto proposal, but it is not a coalition proposal. Perhaps the Government intend to do that quickly, but we do not know. We deliberated this morning on sunset clauses, when the Minister said that he did not think that we want to sit around on this, or words to that effect. If the Bill is passed, we do not know what will happen. Perhaps the Minister—again, I offer him the opportunity to do so—will fill us in on the plansthat exist at present, as we have already asked him to do.
It is felt that the sale will undermine Royal Mail’s ability to provide the universal service obligation, with post offices being the key point of access to mail services. That will threaten the post office network. I believe that my hon. Friend the Member for Kingston upon Hull East has mentioned that. Post offices will become more dependent on Government subsidy and, in these austere times, closures will be inevitable. The USO is important not only to the individuals and businesses that Royal Mail serves, but to the post office network.
Alan Cook, a previous managing director of Post Office Ltd, has said that the USO can be operated with 4,000 branches. We have heard reference to that in Committee today. That point was made loud and clear in evidence by Mr Burrows from Consumer Focus. My hon. Friends and I are worried about that—and that is before we get to worrying about the inter-business agreement and the relationship between the privatised Royal Mail and the state-owned or mutualised Post Office.
Royal Mail can flourish in the public sector. Its position is already improving, as has been made clear by my hon. Friend the Member for Llanelli. Its modernisation programme is funded and it expects to be making normal profit levels in the next few years. It will benefit from the Government’s proposed action on pensions and from changes to regulation, which will provide a more substantial buffer during the current difficult economic climate. The company could benefit from access to additional capital to grow and improve the business in the medium term, but that is possible within the public sector, as my hon. Friend has suggested.
My hon. Friend has mentioned that the Royal Mail can already borrow money from the national loan fund. It would be interesting to hear the Minister say why he thinks that it would not be possible to speed up that process in the way that my hon. Friend has suggested. Perhaps that has not been considered. That would allow Royal Mail to borrow at more favourable rates than could be achieved independently and, as my hon. Friend has said, it would allow the Government to generate some revenue.
The Minister must recognise that public opinion is against privatisation. I draw his attention to the YouGov poll of 18 and 19 August, in which 60% of people who were questioned said that they would be against the content of the Bill.

David Wright: The Minister is trying to avoid polls at the moment.

Gordon Banks: He may want to have a further look at the poll, however, because it states that 63% of Lib Dem voters would be against the content of the Bill, as would 69% of Labour voters, and—for the benefit of members of the Conservative party—51% of Conservative voters would be against a Bill that sells off Royal Mail.
There is no public support or demand for the Bill. However, as my hon. Friend the Member for Telford has said, I am sure that the Minister is not paying too much attention to public opinion at present. His party’s standing in the public’s eye would reduce a lesser man to tears if he deliberated on it too long. That public opinion is based on real and substantial fears—I mean public opinion on the Post Office, not on the Lib Dems, although the public might have substantial fears about them, too. If the representations that I am receiving are anything to go by, they are putting quite a bit of fear into people now. However, I refer to the public fear that the profitable parts of Royal Mail will be hived off and that the Post Office and the USO will be left to wither on the vine.
We know that the Minister favours Government majority ownership—the Lib Dem manifesto says so, but, alas, the Lib Dems are the junior partners in the coalition. What about the Conservative manifesto? It made no reference whatsoever to privatising Royal Mail or to reform of the Post Office. It stated that pubs and post offices were important to local communities; it mentioned the post-bureaucratic age, post-conflict resolution, and even first past the post; it mentioned nothing, however, about what we are discussing today. Eighteen words in the coalition agreement have given us the Bill, which will fundamentally define how the UK’s postal service is delivered—excuse the pun—for the next generation.
The Minister, who stood for election on public majority ownership of Royal Mail, is breaking yet another promise. The case for total privatisation has not been made, and the figures that I read out from the YouGov poll in August should sway the Minister to that thinking.
Richard Hooper’s analysis of the postal market is seen by some as a premise for privatisation. Royal Mail is modernising successfully in the public sector. We have referred to its chief executive Moya Greene many times and, I fear, will continue to do so in the coming sittings. In evidence to the Committee last week, she said that the modernisation programme
“is well under way in Royal Mail and has generated significant change and improved the efficiency of our operation. It is a huge thing—this is a very large company. We are probably mounting a modernisation programme faster than anywhere else in the world.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 8, Q11.]
If anyone were still in doubt about Royal Mail’s ability to flourish in the public sector, I have some facts, which my hon. Friend touched on in her contribution and which are worth repeating or expanding on. In 2009-10, Royal Mail Group made £404 million in operating profits, which was up 26% from £320 million in 2008-09. In 2008-09, all four main business units were in profit for the first time in almost 20 years, and remained so in 2009-10. In 2009-10, Royal Mail letters made £121 million operating profit, which was up 108.6% on £58 million in 2008-09, compared with a £3 million loss in 2007-08. That rise in profits came from increased efficiency with £206 million worth of cost savings in 2009-2010 following significant savings in 2008-09. The Committee will remember my reference to my lack of expertise in maths, but I have always been quite good at arithmetic. Arithmetically, those figures deliver a story that suggests that Royal Mail has turned the corner and has a role to play within public ownership.
It is important to see the performance of Royal Mail in context. We should put it in an international context, an issue that my hon. Friend the Member for Llanelli touched on in her presentation. However, it is worth remembering that those results were delivered in what can only be described as challenging times, when there was a considerable shock to our economy and falling mail volumes of 5.5% in 2008-09 and 7.3% in 2009-10. If my memory serves me right, Richard Hooper commented that the decline in mail in the United Kingdom in 2009-10 was significantly less than in other markets. That really says something about the quality of the business that we are dealing with.
Revenues are lower and down by 3.9% over the two financial years, but let us contrast that position with the private sector, which is where the Government want to take us. In 2009, TNT’s profit margin fell by 3.7% and its profits were down 25.4%. Deutsche Post saw a reduction of 5% in its profit margin and a 36.5% decline in its profits. Both companies experienced far smaller decreases in mail volumes and, in the case of the Netherlands, a shorter and less severe recession than the UK in its home market.
The separation of the Post Office from Royal Mail fundamentally threatens the future of the post office network. The survival of the Post Office, in anything like its current state, is dependent on its relationship with Royal Mail. The mail products and consumer footfall that they generate at post offices are the largest and most important revenue stream. Inevitably, separation will weaken the relationship between the two companies and will make future post office closures more likely.
We heard the Minister say that he cannot guarantee that there will not be more post office closures. I hate to bring the Committee back to something that I have mentioned several times and might continue to mention, but I cannot even get a post office in Bankfoot in my constituency. The Committee will recall my taking up the issue with Ms Vennells last week. The IBA is so important—it is too important not to be covered by the Bill. I accept that we have heard comments about the legality of enforcing an IBA period, but if an Act of Parliament cannot enforce it, I am fairly sure that the sale prospectus will not hold too many challenges for the legal team of whoever is the successful bidder.
In 2009-10, the Post Office received £343 million in revenue directly from Royal Mail businesses. As I have said, it has become increasingly reliant on its mail business, which accounts for just less than 37% of its revenue. It is therefore essential that the Post Office retains Royal Mail business. In private ownership, Royal Mail would look to reduce its costs, which would be to the detriment of the Post Office. The Minister has been under some pressure from the National Federation of SubPostmasters on the matter, and he has said that he wants an agreement for as long as possible. I do not understand how an agreement that matches the hon. Gentleman’s aspirations can be enforceable, but a solution that stipulates here and now a certain number of years is not enforceable. We all know that some sort of deal will have to be done, which will prove that a deal is, in fact, doable. We can all imagine the ways in which that could be achieved but, if the Minister cannot support new clause 2, he must commit to a deal for a number of years that provides a future for the Post Office. He should not sell out for anything less than the 10 years argued for by the National Federation of SubPostmasters, and he should, in my view, consider an even longer period. Anything else would put the post office network in jeopardy.
My hon. Friend the Member for Llanelli has made her points well, as have my hon. Friends whom I mentioned earlier. My contribution is to support her in her aspiration that the Government retain a majority shareholding in Royal Mail Holdings plc and its relevant subsidiaries. I believe that that is something that my other hon. Friends will wish to make further comments and representations on throughout our discussion of the Bill as we try to bend the Minister back to the thinking that he expressed on this matter when he stood before the electorate in May.

Graeme Morrice: I will keep this relatively short. I, too, support new clause 2—that may not come as a surprise to hon. Members—and I agree with much of what my hon. Friends have said. It seems to me—this has been touched on by my hon. Friends—that the main reason for the Government forcing through this issue is not wholly one of economic expediency, but one of political dogma. In my view this has been ideologically driven, because that is what Tories do—it says it on the tin. There is plenty of evidence for that. One need only look at the privatisations of the 1980s to see that that is the case. What is surprising, though, is the extent to which the Liberal Democrats are going along with it, despite their manifesto commitment to retaining majority public and employee ownership of Royal Mail. Not only are the Lib Dems slavishly following that right-wing agenda of ideological privatisation—

Edward Davey: Enslaved.

Graeme Morrice: The Minister feels enslaved, and so he should. He is most definitely in the hot seat on this issue, because it is the Lib Dems who are driving the issue of Royal Mail privatisation, as they are on other issues, not least student finance.

Gordon Banks: Does my hon. Friend agree—this has been mentioned many times today—that we are looking at a Lib Dem Minister bringing through a Bill that is contrary to something on which he stood for re-election in May? Does he also agree that this Bill appeared in neither of the governing parties’ manifestos, so it has no popular support?

Graeme Morrice: My hon. Friend is correct. Many of my hon. Friends referred to that earlier. Just to reiterate the point—I apologise for repeating this simple fact—the Liberal Democrat manifesto made a commitment to retaining the majority of Royal Mail in public sector ownership and employee share ownership, with a minority being privatised.
The Government say that privatisation is needed to attract the necessary capital investment. We all agree that Royal Mail needs capital investment, but is it beyond the Government’s wit to obtain private investment while retaining public control of Royal Mail? Of course it is not. We have had many examples of how the Government could achieve that objective. I need only cite past public-private partnerships that achieved new schools and hospitals while the direct provision of education in our schools and health provision in our hospitals was kept in full public ownership and control.
May I also ask—my hon. Friend the Member for Ochil and South Perthshire made reference to it earlier—what consultation the Government have undertaken? Have they asked the public what they think about the privatisation of Royal Mail and its possible decoupling from the post office network? As far as I am aware, there has been no consultation. I am a great believer in asking people what they think about what we do before we actually do it. My background is in local government—I was a councillor for 23 years. We put our customers at the heart of the process and asked our stakeholders what they thought we should be doing before we implemented anything. That was a successful model.
As I have said, as far as I am aware the Government have not properly consulted the public, yet we are aware from independent opinion polling that the majority of the public oppose the privatisation of Royal Mail and wish to see it remain in public ownership. Of course, that figure is much higher when the work force are polled.
Earlier, the Minister talked of political interference. To my mind, the real political interference is what the Government are doing to my postal services, your postal services and the people’s postal services. He also talked about flexibility. I support flexibility in the provision of postal services—Royal Mail working in partnership with the post office network and adapting to changing circumstances and market conditions, which is something that may be lost if Royal Mail is privatised, fragmented and left to the vagaries of the financial institutions.
I oppose the Bill because I believe that it is wrong. It is ill informed, ideologically driven, unwanted and, more importantly, unnecessary. That is why I support new clause 2.

Edward Davey: It is a pleasure to welcome you to the Chair, Mr Amess. I look forward to working under your chairmanship in the sittings that you chair. You have witnessed a long and interesting clause stand part debate. It has been a long debate, because the clause goes to the heart of the Bill. It is about the future ownership of Royal Mail, and we have had a good opportunity to debate that and hear the views of the Opposition. In my response, I want to deal with a number of key themes that have emerged—capital and the capital requirements, modernisation and how much progress has been made. Various members of the Committee have talked about how privatisation impacts on the Post Office. Although it is not fundamental to the clause, I will respond to that. Several Committee members have raised other issues, and I will try my best to cover all the individual points—I apologise if I do not manage to cover every single one.
I will start by making it clear why I believe privatisation is right for the business, why I believed it before the election and why the Liberal Democrat manifesto advocated it. I cannot for the life of me understand why the Committee members who quoted from the Liberal Democrat manifesto did not realise that it was in favour of privatisation. Certainly, the CWU, which lobbied against it when we debated it in public at two party conferences, realised that that is what it meant.

Gordon Banks: Will the Minister give way?

Edward Davey: In a second. It is quite extraordinary that those Members are unable to understand that today. Before I give way to the hon. Gentleman, I should say that I made an interesting intervention on the hon. Member for Kingston upon Hull East. I asked him whether he realised that employee share ownership took place in the private sector, and he agreed with me that it did.
By my arithmetic, if one was selling 49%, as in our manifesto, and 25% to employees—I am not sure about the arithmetic of the hon. Member for Ochil and South Perthshire—that would mean that a controlling stake was in private sector hands. That is privatisation. That is what I argued for in my party. That is what we argued for at the election. I cannot understand why the Labour party cannot understand that, but I am happy to let the hon. Gentleman—our mathematician and our own Sebastian Vettel—into the debate.

Gordon Banks: The Minister doth protest too much over this. I will read it again:
“49 per cent of Royal Mail will be sold to create funds for investment. The ownership of the other 51 per cent will be divided between an employee trust and the Government.”
How much of the privatised Royal Mail, under the Minister’s current proposals, will the Government own?

Edward Davey: The issue that has been debated, certainly listening to Labour Members, was whether the Liberal Democrats wanted the Government to have a majority shareholding. That is what the charge was, and I have proved that charge to be completely wrong. Opposition Members need to improve their literacy, if not their numeracy.
Can I explain why we argued for that—why we had a debate at our conference and why, as someone who worked in this sector for four years before getting elected, I believe that this is the right approach? There are two fundamental issues that the Labour party has failed to address in any of its remarks, and there are two key characteristics about this industry as we go forward.
First, the industry is undergoing massive structural change; anyone looking at mail flows or modern communications can appreciate that. Richard Hooper talked lucidly and interestingly about that in his evidence to the Committee last week. No member of the Committee can be unaware of the dramatic changes that are happening and how they are going to transform this industry and this company.
When one is going through massive structural change, there is uncertainty and risk, and I have to tell the Labour party that industries and firms faced with uncertainty and risk do not sit well in the public sector. The need for flexibility, for quick access to capital and for quick decision making is much more necessary when a company or industry is going through such structural change, and, therefore, a private owner makes much more sense for this company.
I intervened on the hon. Member for Llanelli on this second point and although she admitted it, I do not think that she necessarily saw the power of the argument. This is an industry that is becoming less labour intensive and more capital intensive. Clearly, there will always need to be an awful lot of employees, because machines will not be delivering letters to the door. I certainly accept that, and I welcome the fact that there will still be high employment in this company and this industry in the future.
Anyone who has looked at postal administrations around the world, and at how they are working and preparing for the structural change and challenge of the future, will know that significant amounts are being invested in new machines that can do the sorting to much finer levels than has historically been the case. A lot of the manual interventions in sorting letters and parcels are being taken out and capital is replacing that.
That is a critical structural change, and the Labour party has to understand that. I cannot believe that its Members seriously think that the taxpayer will be able to provide that level of capital investment. It is not about a one-off modernisation; we are not talking about one-off changes, but about dynamic changes over a period of years.

Nia Griffith: Will the Minister confirm whether he heard me say that there have been job losses and significant amounts of investment in machinery? Did he hear me refer to the fact that the modernisation programme was fully funded and that beyond that it will depend on what type of activities Royal Mail takes part in? Does the Minister understand those points, even if the rest is ignored? It is about the future. Apart from that, we have still not heard what the Minister has done to investigate sources of funding other than privatisation. Perhaps he will tell us that.

Edward Davey: I will come to that issue, but first I will finish my point about the core underlying economics that the Labour party does not seem to address. I give credit to the hon. Lady. In her remarks, she made it clear that under the previous Government, over 60,000 jobs were lost in Royal Mail as it began to address issues of modernisation. There has been some investment, but the process is far from complete. When I come to the argument about modernisation, which the hon. Lady went into in detail, I will look to the Hooper report to show that the process is far from complete.
Let me touch briefly on the experience of the German Post Office, Deutsche Post. Since its first flotation in 2001, the equivalent of £11.9 billion has been invested. Part of that £11.9 billion has been spent on the sorts of things that Royal Mail is beginning to invest in, such as walk-sequencing machines and other sorting equipment that we could no doubt discuss. Quite a lot of that money has been invested in ensuring that Deutsche Post is able to deliver more effectively, and sort, distribute and allocate parcels. It understands that because there will be no “Beam me up, Scotty” technology in the immediate future, as Richard Hooper told the Committee, much of the future of such businesses will be in parcels.
Traditionally, because the parcel sector has been more competitive, a lot of that business has been won by private companies. For a universal service provider such as Deutsche Post or Royal Mail to be competitive, there must be serious investment in that area. That is why Deutsche Post has gone in that direction, and that is my prediction for Royal Mail. Critically, it is not about the one-off amount of capital that will be needed; it will be a continual process, because that is what the competition will be doing both domestically and internationally. That is the sort of position structure that we need for Royal Mail.

Gregg McClymont: The Minister paints a glowing picture of Deutsche Post, which I understand to be fairly accurate. Does he agree that Deutsche Post is not fully privatised in the way that the Bill seeks to privatise Royal Mail?

Edward Davey: We have already had this exchange. The hon. Gentleman failed to make his point then, and I am afraid he has failed to make it again. The majority of Deutsche Post is owned by private sector investors. If he cannot accept that, he is not accepting the facts.
I made that initial point, but I want to deal with the capital issue at some length. It was at the heart of the remarks made by the hon. Member for Llanelli and it goes to the heart of the debate. I was surprised by one point that the hon. Lady raised, as it was not reflected in the evidence that we heard from the witnesses. At one stage, she said that she does not think that 18 months is a long time to wait for capital. As we heard from the chairman, Mr Brydon, 18 months is a ridiculously long time to wait for capital.
Companies facing challenges such as those faced by Royal Mail need to know that they can get access to capital when they need to. When the board decides to make a strategic investment, it does not want to have a public debate so that all its competitors can see that it needs money to invest in a certain area. That is not a commercial approach; it is giving one’s competitors 18 months’ notice of the sorts of capital investment one is going to make. That is a nonsensical way in which to run an industry. It is no wonder that we heard from the chairman about the impatience and frustration that have been felt.

Gregg McClymont: I have not checked the record, but I suspect that many of the same arguments were made when rail was privatised. There is nothing new in the world, and the argument about capital strikes me as the kind of argument that would have been made at that time. Does the Minister suspect that to be the case?

Edward Davey: Many arguments were made about rail, electricity and water privatisation. Each has different attributes and characteristics. I do not want to try your patience, Mr Amess, but my problem with rail privatisation was not that private capital would be introduced into the industry; it was with the structure that was proposed. Given that the current Leader of the House, who is now my right hon. Friend, privatised the railways, I think that I had better move swiftly on.

Tom Blenkinsop: When British Steel was privatised, of course the new private owners had greater access to capital. The Minister has spoken of getting additional private equity capital, and about putting skin in the game—putting more at risk—to get private equity to invest in the business. However, when steel was privatised, the Redcar coke ovens on Teesside still had not had a penny piece of capital invested in them since 1984, in the nationalised days. Just because private companies can access capital does not mean that they actually will.

Edward Davey: The hon. Gentleman makes a fair point. It is not absolutely essential, but historical comparisons between state-owned industries and privately owned industries show that privately owned industries tend to invest significantly more. That has been shown time and again.
The hon. Member for Llanelli spent a long time discussing capital, but did not mention her party’s 1999 White Paper, “Post Office Reform: A world class service for the 21st century”. In those days, Royal Mail was known as the Post Office. I refer her to page 55:
“The Post Office will be expected to finance investment in the core business from retained earnings.”
That would have been nice. Unfortunately, after the stewardship of the previous Government, Royal Mail has been left losing more than £1 million a day and last year paid out £500 million more in cash than it received. It is a shame that Royal Mail does not have retained earnings to fund investment. On 31 March 2010, its retained earnings, which the previous Government’s policy was based on, were minus £6.968 billion. That does not look like a good investment model to me.

Nia Griffith: Will the Minister accept that I did quote from the 1999 White Paper? I have made the point repeatedly this morning and this afternoon that we are looking at the transformation of Royal Mail from a position where it was not making profits to a position where it is becoming viable and has a clear future. I am suggesting not that no capital is needed, but that there are ways in which it can be raised other than by fully privatising the industry.

Edward Davey: That is absolutely what the hon. Lady has been saying. I looked at the 1999 White Paper to see what ideas it had on how investment might be funded, other than by privatisation. The first idea was that of retained earnings. As I have shown, that is an unfortunate method because earnings of minus £6.968 billion are unable to fund investment.
Secondly, the 1999 White Paper committed the previous Government to borrowing facilities of more than £75 million. In such circumstances, Ministers would undertake a
“fast track, but rigorous…approval process”.
Furthermore, Ministers would
“complete this process within 28 days of a full business case being received.”
The 1999 White Paper was saying, “Either retain earnings”—there have been none—“or, if borrowing of more than £75 million was required, the Ministers would have a fast-track process, where they would look at it within 28 days and sort it out.”
However, as we heard from the chairman, the 28 days promised by the last Government in 1999 turned into 18 months of delay. The last Government tried a different approach to raising capital, but they failed time and again. That is one of the reasons why we are in this mess. Interestingly, the White Paper said that the last Government considered the case for allowing Royal Mail to borrow from commercial markets. They concluded that
“the markets will regard such borrowing as being underwritten (at least implicitly) by Government, and so such borrowing is likely to confer little, if any, additional discipline”,
and the last Government rejected that approach.

Gordon Banks: I am concerned with some of the Minister’s comments, and his statement a few sentences ago about the mess that we are in regarding Royal Mail. That contradicts the evidence that we have heard from Moya Greene. This Committee should not be talking down Royal Mail, but singing its praises—as Moya Greene, its chief executive, did. We should be supporting Royal Mail, not talking it down.

Edward Davey: Let me help the hon. Gentleman: I am talking down the record of the last Government in managing Royal Mail. I am talking down the failure of the last Government to reform Royal Mail. I am talking about the White Paper that the last Government proposed, on how to get capital into Royal Mail, and how they failed dismally. I am not talking down the management or employees of Royal Mail. I am talking about the framework in which they were expected to operate a modern business, and the failures of that framework.

Tom Blenkinsop: Does the Minister think that a potential buyer, after reading the Minister’s previous sentence, would want to buy Royal Mail now?

Edward Davey: Yes. Let me go on, because this is quite a sorry story. The 1999 White Paper also extolled the virtues of a rigorous dividend regime for driving commercial disciplines in companies. It committed the Government to inform Parliament of the expected dividend from Royal Mail after the Government had agreed to the company’s strategic plan. The Government would then inform Parliament at the end of the financial year of the final dividend that had been paid.
What a shame that not once—not once—since Royal Mail was converted into a plc by the last Government has Parliament had the pleasure of hearing that the company was in a fit enough financial state to be able to pay a dividend to the Government as a shareholder. Not one dividend was paid as of 2001.

Gregg McClymont: Am I right in saying that under the Minister’s Bill, the Government will certainly never receive a dividend?

Edward Davey: I am sure that the Government will get a dividend in terms of corporation tax on the profits that I believe the company will make. I think the hon. Gentleman will have to eat his words.
The hon. Member for Llanelli made a specific point about Royal Mail. I think I am quoting her correctly; she said that under her plans, Royal Mail should be able to borrow with preferential rates. Perhaps she misspoke, but let me set her straight by quoting from her party’s 1999 White Paper:
“But in order to ensure that the Post Office competes fairly with other postal operators in the private sector; and to reinforce commercial disciplines, the Post Office”—
Royal Mail—
“will borrow at a rate which is broadly comparable to the rate it would be charged in the market without an implicit or explicit Government guarantee.”
In other words, her Government rejected the idea that there should be preferential rates for Royal Mail borrowing. I hope that she, from that analysis of her Government’s 1999 White Paper, will see that there has been both experience and attempts to look at other ways of raising capital, and that they have clearly failed.

Nia Griffith: If the Minister goes back over the transcript, he will see that the reference there was to where European state aid laws would come in, and if we were to give a preferential rate, they would clamp down on it. The point was that loans could still be provided at a sensible commercial rate. A commercial rate would be one that was similar to that of competitors. What specific studies has the Minister made of other options for capital since he has been in post?

Edward Davey: I have certainly read the 1999 White Paper, as I think the Committee can now see, and when I gave evidence to the Committee I talked about the experience of the New Zealand post office, with which I am familiar, and about how it had four long-term credit lines with private sector banks. The hon. Lady will remember that in my evidence I said that one might have considered that model, but the problem is that Royal Mail’s assets have effectively already been secured against the borrowings that it has already made. Given that it has a negative cash flow, the idea that a private bank would lend against future revenue prospects is a limited one. Therefore, as I said in my evidence, what we need is risk capital finance—equity finance. It is simply not the case that there is some sort of debt-borrowing, get-out-of-jail-free future for Royal Mail.
The hon. Lady stated that we engage in euro-scaremongering when we talk about state aid. I hope that she realises that I would never engage in euro-scaremongering; I suggest that we are not doing so and that she is over-simplifying the situation. For example, the 2007 commercial financing for Royal Mail had a package that the Commission took nearly two years to approve. That was not because the Commission did not give it due care and attention, but because it is difficult to benchmark what is commercial when a Government lend or invest. In the private sector that is easy to determine, as that sector either gets the money from the banks or the markets, or it does not. In the public sector it is more difficult.
The hon. Lady has, I think, had a simplified view of what Royal Mail’s competitors’ view might be of any financing from the Government to Royal Mail. She will be aware that, under European rules, if the Commission receives a complaint about state support given to Royal Mail, it is obliged to open an investigation. Such an investigation may take a minimum of six months, but in reality it can take between 12 and 18 months, as the 2007 case proved. There is no easy fast track that we can look at, as our own Government’s experience has shown time and time again. The hon. Lady failed to answer the fundamental question that I put to her. The Royal Mail’s balance sheet cannot bear any further substantial debt. It is basically maxed out on its security for loans, and it therefore needs the equity capital for which I have been arguing. Someone has to take that investment risk, particularly given the structural change and the uncertainty that the industry faces.
A lot has been made of political interference. A private investor would be worried about political interference in key strategic decisions, for example decisions on closing a mail sorting centre or opening one, or on getting foreign capital in. There could be a lot of lobbying, and the CWU, which has done a fantastic job in working with management for the modernisation agreement, is a well respected lobbyist of MPs. Some people would suggest that the reason why the 2009 Postal Services Bill was not brought to the House of Commons, having been taken through the House of Lords by Lord Mandelson, was not so much to do with market conditions, which was what he said in his statement to the House, but more to do with CWU lobbying of Labour Back Benchers. I would have thought, therefore, that the Labour party would know all about political interference in a publicly owned company.

Gregg McClymont: I wonder whether in 2009 the scales had fallen from some people’s eyes regarding the market and its ability in all circumstances to provide the right outcome, and whether that played a role, along with the other factors to which the Minister referred.

Edward Davey: I am not sure about the thrust of the hon. Gentleman’s question—whether it was about scales falling from people’s eyes or quite what point he was seeking to make. Perhaps he wants to intervene again.

Gregg McClymont: There was a severe financial crisis in 2008-09—perhaps the most serious in 70 years—and most people agree that its roots lay in an unfettered market. Apropos of the Bill, the regulators of financial markets were constantly told by the people operating in those markets not to interfere too much, because the people operating in those markets knew best. There is an issue to consider about regulatory capture, which is a major issue in the Bill, and the consequence of privatisation where the Government do not have a role.

Edward Davey: Let me respond to at least one of the hon. Gentleman comments. The idea of regulatory capture is interesting. That is one reason why the Bill borrows from the 2009 Bill and changes the regulator from Postcomm to Ofcom. I am not suggesting and do not think that history suggests that Postcomm was captured in any way by the Royal Mail, at least, but with a regulator such as Ofcom, which is responsible for a much wider market, the dangers that the hon. Gentleman is worrying about will not be there.
The thrust of the argument advanced by the hon. Member for Llanelli was that modernisation was progressing well, everything was hunky-dory and we did not need privatisation because everything was so fantastic. She clearly has not read Richard Hooper’s update or original report. Although she quoted a little bit from it, she did so rather selectively. In Richard Hooper’s diagnosis of the current state of Royal Mail from this September, he clearly states that there has been good progress on modernisation and that there is a better regulatory climate and better industrial relations, but he goes on to state that four interconnected concerns identified in the 2008 report have got worse—the decline in letter volumes, market share losses, which are both worse than expected, the increased size of the pension deficit, which is larger than expected, and the deteriorating financial health of Royal Mail. Those significant negatives are identified by Richard Hooper.
Reading part 2 of Richard Hooper’s update, some of the more optimistic noises that the hon. Lady wanted to bring to the Committee’s attention are not there. For example, on the financial health of Royal Mail, as analysed by him, he makes it clear that
“Royal Mail’s financial health has deteriorated even further since 2008…Post-tax losses for the Royal Mail Group have grown from £229m in the previous financial year to £320m in 2009-10. Pre-tax losses for Royal Mail Letters have grown from £200m to £333m.”
He then talks about the worsening balance sheet and says:
“The Group is therefore unlikely to be able to fund its modernisation programme from operating cash flow on any continuing sustainable basis, even given the Government’s existing debt facilities of £1.2bn.”
I hope that, given that that report was written in September, the hon. Lady is not seriously suggesting that that is a clean bill of health for Royal Mail. There are serious problems.
I will not go through every section of Richard Hooper’s argument—he gave evidence to the Committee—but let me deal with modernisation head-on in terms of what progress is being made in Royal Mail. Let me be clear. I welcome the progress that has been made. On pages 23 to 25 of his report, Richard Hooper sets out where modernisation is far from complete and where there are currently serious risks, and he finds out whether that modernisation, including levels of automation and cultural change towards customers, will be taken forward. He is concerned about a range of things. The Opposition cannot rest on the argument that modernisation is the answer and say that we do not need to take more significant serious action.
Let me turn to what the hon. Lady and one or two other hon. Members talked about with respect to the Post Office. They seemed to think that our policies—the fact that we are privatising Royal Mail—will be a huge problem for the Post Office.
I referred again in my work for this afternoon’s debate to the 1999 White Paper because it talks in glowing terms about the Post Office. This is a quote from the Labour Government’s White Paper of 1999:
“The network of nearly 19,000 post offices makes up Europe’s largest single retail network and forms a familiar and valued part of the social and commercial infrastructure of the country. Although they provide an important point of access to the services of Royal Mail and Parcelforce Worldwide—and in so doing play an essential part in enabling the Post Office to fulfil its Universal Service Obligation—the key business conducted at post offices today is in the delivery of such Government services as the payment of pensions and other social security benefits and the issue…of vehicle licences.”
What happened under the last Government? There were 7,000 post office closures and Government service income declined by almost three-quarters in the past five years. That is the hole they dug Royal Mail and the Post Office into when they were in government. That is the hole we are fixing. That is why we are investing £1.34 billion to refresh and modernise the post office network, and that is why we are developing new business for the Post Office by making it a front office for Government, as we set out in our policy statement.

Gregg McClymont: Will the Minister give way?

Edward Davey: I do not know if the hon. Gentleman is going to tell the Committee about the number of post offices that closed under the last Labour Government in his constituency.

Gregg McClymont: At Second Reading the Minister called me the hon. Member for Cumberland, so I will have to go to Cumberland to find out about the post offices there.
I listened closely to what the Minister said about post office closures. Will he confirm that between 1999 and 2004 the Labour Government put £2 billion in investment into the post office network and we still ended up with the large-scale closure programme? I wonder whether that says something about the difficulties that his Government are going to face in delivering on the promise that there will be no programme of closures.

Edward Davey: I do not want the debate to degenerate too much, but I have to say that that shows the incompetence of the last Government. They spent a lot of money on the post office network, and they spent it on closing post offices. We are spending money on transforming and modernising the post office network, as our policy statement makes absolutely clear.
I know we will come to it later in the debate, probably several times over, but there were some concerns about the separation of Post Office Ltd and Royal Mail. The Consumer Focus evidence that we had was actually quite supportive of that proposal. Its written evidence says:
“The privatisation of Royal Mail will result in the formal separation of Royal Mail and Post Offices Ltd (POL). Consumer Focus recognises that formal separation offers considerable advantages for POL, for example it would be managed by a Board that was more closely aligned against its strategic objectives and would no longer be a junior partner in group-wide decision making.”
Mike O’Connor, the chief executive of Consumer Focus, in his witness session said:
“We recognise the benefits of separating the post office network from Royal Mail.”––[Official Report, Postal Services Public Bill Committee, 11 November 2010; c. 88, Q174.]
Does the hon. Lady want to get in?

Nia Griffith: The Minister is well aware that the second part of that statement says that they are very worried about it happening too soon. They are very worried that at the moment the Post Office is not actually in a state to be able to cope with that loss of a third of its business. Will the Minister explain to us how it is that in an announcement last week—when quite a considerable amount of taxpayers’ money is being put in—we have not seen anything that will make post offices more viable, in terms of new business, and we have not seen a guarantee that they will be getting that DWP contract? Those are the things that could possibly enable them not to need that Royal Mail business. I suspect that at the moment those post offices are absolutely terrified of what the future holds for them.

Edward Davey: When I meet the chief executive of the National Federation of SubPostmasters, he does not appear terrified by me or by the proposals we are putting forward. Indeed, one can read many of the press releases he has put out. While, of course, he wants the Government to go further, as one would expect—the National Federation of SubPostmasters always wants the Government to go further and I respect his role in that—he has actually welcomed many of the proposals we have put forward.

Nia Griffith: Can the Minister tell us whether he will move, or will he insist on a tenure agreement for the inter-business agreement with the prospective purchaser of Royal Mail?

Edward Davey: I made my position clear at the evidence session and no doubt I will make it clear in future debates, but let me make it clear again. The issue is one for Royal Mail and Post Office Ltd. That is who the contract is between. Under the previous Government, Ministers did not negotiate that contract or have sight of the terms of the contract. My understanding is that they would not have seen the contract—I, certainly, have not seen it. I was heartened, however, by what the chairman said about the issue. He wanted an as-long-as-possible inter-business agreement, and that is what he would work for.
I am conscious of not wanting to take up too much more of the Committee’s time, but I want to respond to some of the individual points. The hon. Member for Angus was worried about the universal service obligation in rural areas. He is absolutely right; it is critical to many rural communities and therefore I hope he welcomes the extra safeguards in the Bill which were not in the 2009 Bill or in the Postal Services Act 2000. Indeed, those safeguards have never been there before and include strong terms about the need, if there was to be a change, for Parliament to be involved in the process and for a proper review by Ofcom. Indeed, any change would still require uniformity of price, which is not required under the European postal directive. They are strong safeguards for the universal service obligation, which have not been there before and ought to be welcomed by the hon. Gentleman and other hon. Members who represent rural communities.
The hon. Member for Livingston was worried about consultation. We could, of course, consult again on some other idea. We could consult again and keep consulting. We could never take a decision. However, the issue has been fully debated over many years. Richard Hooper, in 2008, under the previous Government, had a substantial consultation and talked to many people in the industry, from the employee, competitor, Royal Mail and user sides—an extensive consultation on the back of which the previous Government felt able to proceed with a Bill. We have come to power but, given that our Bill is not dissimilar from the previous Bill, we decided that we should rely heavily on the evidence from the 2008 Hooper review. We sought an update, which we got. It involved Mr Hooper consulting further, and so we relied on the original review and the update. That is consultation enough.
The hon. Member for Kingston upon Hull East at some stage got a little confused between the post office network and the universal service obligation of Royal Mail. He made a lot of points about whether there should be majority ownership of Royal Mail. I hope that he now appreciates that in order for a Royal Mail company to have easy access to sufficient capital, there needs to be a majority shareholding in the private sector.
The hon. Member for Middlesbrough South and East Cleveland talked about capital—he wanted to know how much and what for. From, in particular, my example of Deutsche Post and from my description of the challenges facing the company and the industry, I hope he will appreciate that the need is not for a one-off injection of capital. Anyone involved in the sector will need continual investment, in machines, automation, new processes, new plant and so on. For the public sector to be in a position to provide that capital over the next five or 10 years, given that it was not in the years of plenty, anyone would realise that the answer would be no.
What we are doing in the Bill is by far the best way to get large amounts of private capital into Royal Mail so that we can defend the universal service, to which we and our constituents are committed, and restore Royal Mail to what it was many years ago—one of the world leaders in the delivery business.
I give way to the hon. Member for Cumbernauld, Kilsyth and Killi—

Gregg McClymont: I was about to say bravo, but the Minister fell at the last hurdle. I am sorry to return to this point, but the Minister is determined to keep mentioning Deutsche Post. [Laughter.] It is 42% state-owned. That is a serious point. I have said so over and over, and the Minister keeps returning and mentioning Deutsche Post as an example that he wants to follow, so I will push him on this. Can we have a Bill where 42% of the Post Office is in state ownership?

Edward Davey: I brought Sebastian Vettel into our proceedings earlier, so if we are going to have a lot of Teutonic references I suppose I am to blame. The hon. Gentleman is wrong about the percentage of Deutsche Post that is in public hands. Indeed, I have just had some inspiration, and I believe that 30.5% is owned by KfW Bankengruppe, which is a state-owned bank, and 69.5% is a free float.

Gregg McClymont: I am sorry; what was the second figure?

Edward Davey: It was 69.5%, and I am very happy to provide more details for the hon. Gentleman.

Gregg McClymont: Will the Minister give way?

Edward Davey: Sehr angenehm.

Gregg McClymont: I am delighted that the Minister has put me right, but that means that 31% is still in public ownership. Can we have a Bill with a public stake in Royal Mail of one third? That would delight everyone on this side of the Committee.

Edward Davey: If the hon. Gentleman wanted the state to have such a shareholding, he would have to make an argument for it. During today’s debate, the Opposition’s absolute and utter failure to provide arguments to justify their belief that the state should hold on to so many shares has been noticeable.
As we undertake this transaction we will decide when to sell different parts of our shareholding in Royal Mail, and how much we will sell, but we are absolutely committed to having the greatest flexibility in how we approach that. We may initially, in the first phase, have a minority sale to enable us to obtain capital to go further. I think that is exactly the right approach, because we want to ensure that whatever decisions we have to take in the future are in the interests of Royal Mail, in the interests of the constituents whom we represent and who use it, and in the interests of the taxpayer. That flexibility is there, which is extremely important.
I am running out of time, because I want to allow the hon. Member for Llanelli time to respond to my remarks. I apologise to the Committee if I have been unable to respond to every comment and point that has been made, but I am sure that we will have plenty more time to cover that ground again and again.

Nia Griffith: Some fundamental differences exist here, and everybody has used the appropriate evidence and quoted the bits that they like. In such a situation there are clearly different ways of doing things, and the Opposition firmly believe that the opportunity to keep the organisation majority public-owned allows far more control over aspects such as the IBA and the USO.
To conclude, I want to put on the record the Opposition’s view that wholesale privatisation of Royal Mail is excessive, extreme, simplistic and places much at risk. At best, it will leave us desperately hoping for a regulatory framework that will ensure a continued affordable service to the public—a framework that, to be fair, the Government have yet to explain and define in detail—and, at worst, it will bind a key national resource to the whims of a fully private enterprise, where the profit motive is the main driver to which everything is sacrificed, leaving the consumer paying ever-increasing prices for an ever-diminishing service.
This is a matter of fundamental importance to Opposition Members, as we have seen from the lively contributions to the debate this afternoon, and we will want to return to it on Report. I beg for guidance from the Clerk as to whether it is for me to speak about new clause 2 first or for the Minister to speak about clause 1.

David Amess: I am advised that we will come to the details of new clause 2 later, but in any case we deal with it much later in the Bill. It has been debated already.

Nia Griffith: Thank you, Mr Amess.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned.— (Mr Newmark.)

Adjourned till Thursday 18 November at Nine o’clock.